Slipping and Sliding

Iran is paying for US fears of instability arising from depleted energy resources

There is a great churning that is going on in the energy-rich West Asian region. US attempts to control the destinies of these regions through massive force have recoiled. Iraq, which was to give more and cheap oil, has been a failure. Actually the reverse has happened; oil production has declined, costs have increased and profits from these projects never materialised. Further, the Iraqi Shias and the Iranians seem to be getting closer. Saudi Arabia, is internally unstable and highly Islamised and despite having the largest known reserves, cannot sustain a further surge in output. There are new and aggressive competitors, primarily China and India, whose economies are the fastest growing in the world today and an existing consumer, Japan, with strong interests in the region. Like the US, both India and China wish to build a Strategic Reserve. Russia backs Iran. Besides, there is the prediction that oil production is about to peak. This means that it will be increasingly difficult to pump more oil and eventually production will start to decline.

Iran, the local bad boy of the region in US eyes, seems to be the next target and the stated reason again is weapons of mass destruction. The London-based International Institute for Strategic Studies, in a press launch (Sep 6) of its study of Iran’s Strategic Weapons’ Programme, assessed that Iran’s nuclear option was not imminent and was several years away from producing enough fissile material for a nuclear weapon. Even the Americans do not have an accurate picture of Iran’s nuclear weapons’ status with the additional factor of low credibility post-Iraq. Yet the drums of war from Washington sound louder and louder like they did before they went into Iraq. The world has seen an exhibition of arrogance of power in Afghanistan and Iraq diminish into an impotence of power but the lesson that beyond a point there is a futility of power, has apparently not yet been learnt adequately. This time around it would be much worse.

No one, either in the US government or outside, will mention that the real reason is oil and gas. The present US administration, more than the any other in recent years, is driven by oil and gas interests. Those in power today have had successful careers in this business and would soon be reverting to this after the present term runs out. Iran’s total hydrocarbon (oil and gas) reserves amount to an equivalent of 280 billion barrels of oil, slightly less than those of Saudi Arabia. Ideally what the US would like to achieve is access to Iran’s hydrocarbon reserves for US companies, restructure OPEC and keep out competition. Unfortunately, the US Executive Order of 1995, renewed by President Bush in 2004, prohibits American companies from working in Iran. This order will not be revoked so long as Iran does not have a regime change and refuses to give up the nuclear option.

The Iranians did make overtures to the Americans when they signed the NPT and agreed to abide though not ratify, the Additional Protocol. They were also helpful in the early months of the war against terror in Afghanistan and never harboured Al Qaeda despite American accusations. The Iranians wanted to come “clean” hoping that the US would lift the unilateral sanctions but instead the US anointed Iran as a member of the Axis of Evil along with North Korea and Iraq and invaded the latter. No wonder today Iran feels threatened and surrounded by American bases in Central Asia, Iraq, Afghanistan, Pakistan and Saudi Arabia along with the massive US naval presence in the Gulf. There have been reports of US reconnaissance missions into Iran. Add to this, the Pentagon now talks of pre-emptive nuclear strikes against potential non-nuclear adversaries. Given this fear, it is understandable, in a way, why Iran asserted its right to enrich uranium. The Americans fear that the Iranians could block the Persian Gulf through which 40% of the world’s energy is shipped or pumped out. Iran could also threaten oil fields in Saudi Arabia, Kuwait, Iraq and the UAE that together possess half of the world’s known reserves.

It is the Iranian plan for a Euro-denominated oil bourse to be commissioned by March 2006 that has sent shock waves in Washington. If this happens, then London’s International Petroleum Exchange and New York’s Mercantile Exchange – both owned by American companies could feel threatened. This would make Iran the regional hub, attract European buyers paying in Euros as well as oil starved Chinese and Indians. Both India and China could offer lucrative trade in exchange to an Iran whose industry has been hurt by sanctions. The global demand for billions of dollars for buying the oil would go down along with the requirement that the US may have to buy a part of its needs in Euros. Further, if other commodities move away from the dollar, this would be the end of dollar supremacy. Some European analysts like Toni Straka describe the effect of this changeover as worse than a nuclear attack on the US. This is the urgency for the US and Iran must pay for this.

The worst is yet to come. Buffeted by hurricanes Katrina and Rita, caught up in the quagmire of Iraq and Afghanistan, the floundering war against terror, damaged refineries at home and rising oil prices are beginning to haunt the US Presidency. Goldman Sachs predict that the price may touch US $ 100 and also that should this happen or the price of petrol cross US $ 5 a gallon in the US, recession will set in. Unless cheap and plentiful oil can be guaranteed, gasoline prices will increase globally but oil companies are warning that the era of easy oil is over. Professor Michael Klare, the author of “Blood and Oil”, calls this the twilight era of petroleum and is worried that excessive US dependency on imported petroleum is becoming a cause for instability.

We need the oil and the gas desperately or our economy and reforms will grind to a halt. We need Iran as a counterpoise to Pakistan, we need the energy resources for our economic development and we need access to Afghanistan, Central Asia and Russia for markets and resources. There must have been very good reasons, other than recent pique, that prompted India’s acceptance of the IAEA resolution which exceeds the formal requirements of the Safeguards Agreement and Protocol. The hope is that the US is pleased enough to reward India. The Iran affair will now go to the UNSC but this is unlikely to satisfy the US, as this does not bring about a regime change in Tehran nor give it access to Iran’s hydrocarbon reserves.

At the same time, the Iran-Pakistan-India gas pipedream could easily become our nightmare not because of Iran but because of Pakistan. It defies logic to deal through a country where the trust deficit is huge, who will use every opportunity to undercut our interests and interdict the pipeline should it want to at any stage. It will leave India at the mercy of Pakistani intentions even if one has a tie up with the Indus Waters Treaty. India will have no control on this.

Meanwhile, if days of easy and cheap oil are over - for India they were never cheap or easy anyway – then we need to get ready for the future; we need to explore, buy and conserve desperately. We need to find alternatives before the oil runs out.

Source : Hindustan times 28th Spet 2005