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When Talk Isn't Cheap By: David Johnson
FrontPageMagazine.com | Monday, June 26, 2006

Unrefined petroleum speculators are a skittish herd and the leadership in Tehran knows this. Leveraging a combination of threats of violence against its neighbors and an ambitious nuclear program, Iranian officials have found the right formula to push the price of their country’s primary export to record breaking levels.

Iran is second only to Saudi Arabia in the Organization of Petroleum Exporting Countries (OPEC) with respect to unrefined petroleum exports. Alternatively, Iran is second only to Russia in terms of proven natural gas reserves.

In his most recent State of the Union address, The President of the United States suggested “America is addicted to oil”, therefore it should come as no surprise that the leadership in Tehran has been making “Bold Moves”. Despite Iran’s holdings and exports, Iran’s oil could be and will be replaced by other sources if exports from Iran stop. According to Sam Bodman, the U.S. Energy Secretary, “We certainly could handle it for a while”.


The shortfall however would not go unnoticed. The market price for crude oil would certainly hiccup and if it stopped for any duration the energy market would choke. Emerging and struggling American businesses that depend on cheap energy to keep their machines producing would be the first victims. Those that do survive will be forced to pass on their increased production and shipping charges to their consumers, forcing up the shelf price of virtually everything Americans buy.


Increased rhetoric aside, Tehran’s dictatorship has also increased its militarism and in combination these bad behaviors are sending shockwaves throughout the community of democratic nations. Iran’s President, Mahmoud Ahmadinejad attained global infamy recently when he threatened to wipe Israel off the map, subject Arab and Islamic countries to terrorism, and questioned the historical accuracy of the Holocaust.


These series of threats are indeed serious. First, Ahmadinejad and his cabinet primarily hale from previous posts in the Iranian Revolutionary Guard Corps (IRGC). Ahmadinejad is himself a former IRGC commander notorious for his brutal interrogation methods. Second, the International Atomic Energy Agency (IAEA) has, on two separate occasions, found traces of Highly Enriched Uranium (HEU) inside Iran’s nuclear facilities; one sample was found in a military complex run by the IRGC


Iran’s nuclear facts are particularly troublesome because HEU makes up the core of a nuclear warhead. HEU serves no industrial purpose but instead is necessary in the production of nuclear WMD. The existence of HEU inside Iranian territory alone suggests Iran has violated the Nuclear Non-Proliferation Treaty (NPT) of which it is a signatory. Tehran’s lack of cooperation with the IAEA and apparent violations of the NPT have landed Iran’s nuclear case before the United Nations Security Council, (UNSC).


For the average Iranian, their government’s petroleum windfall, wining the equivalent of the lottery, has not translated into an economic boon. A litany of poor economic policy and infrastructure decisions continue to push Tehran’s economy to the brink of collapse.  Official Iranian decisions continue to drive off potential and existing investors. Within the offices of major European corporations, perhaps risk consultants are projecting scenarios where risks significantly overwhelm benefits of doing business in Iran.


Within this volatile atmosphere, the Bush Administration recently offered to join direct nuclear negotiations with Iran if it imposes a moratorium on its current uranium enrichment activities. Besides the tacit recognition this offer bestowed on the Iranian government, Tehran would receive a long list of economic and technological benefits including relief from American avionics sanctions and a light-water reactor.


The American offer allowed crude prices to cool by nearly three dollars per barrel. Unfortunately, there are serious indications Tehran will reject this generous offer and in so doing, push the price of crude back up. The alternative to Tehran’s compliance to international demands appears to be some mixture of support for democratic dissidents, economic sanctions or war, none of which bodes well in the short term for a planet thirsty for crude.


On the other hand, long term forecasts could be even bleaker if Iran is not confronted for its genocidal threats that directly lead to the equivalent of price gouging at the well head. For the foreseeable future Iran’s leadership is likely to continue milking their energy cash cow with the same formula that has served them well in the recent past. The formula is simply to push the world, particularly the United States and her allies, to the brink of war.


To be sure, an up or down price vector is indicative of the aggregate mood of oil and gas markets and the correlation to Iran’s recent behavior is undeniable. The peaks and valleys on a price-per-barrel chart, covering recent months may in fact be a reliable indicator of how belligerent Iran’s high ranking clerics, government and military officials were at the time.


Are Iranian leaders just talking tough to manipulate the price of their chief export or are they actually trying to start a war with the Untied States and her allies? Is the increased rhetoric politically charged solely for domestic consumption or is it a reflection of Iran’s foreign policy? The answer is YES to all of the above! The leadership in Iran is doing all of these things because it cannot effectively do one without doing any of the others.


Despite the seemingly limitless capacity of the international community and now the United States, to appease Iran for a possible nuclear compliance, Tehran’s day of reckoning nears. Iran’s tough talk and its bullying of the price of crude will undoubtedly hasten the day.


Recent history shows petroleum speculators are easy to manipulate with tough talk. The fact is Tehran does not actually have to commit the terror and genocide it threatens in order to drive up the price of its chief export. Regardless of Tehran’s intent, the adverse impact to our global economy is real. Tehran’s leadership is tinkering with a global system whose captains may conclude, the short term instability of regime change in Iran is in fact necessary to protect the long term stability of the world economy.

David Johnson is a cofounder of the US Alliance for Democratic Iran and its Director of Operations.

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