6/27/07 - The Endless Iranian Nuclear Crisis

Iran, it is often claimed, has no need for nuclear power, given its abundant oil and natural gas reserves. But the Iranian government is under economic and political pressure to supply increasing amounts of electricity to its growing population and fragile economy.

Using oil or natural gas for domestic electricity threatens oil and gas exports, which are the principal source of government revenues. Indeed, with domestic oil consumption growing at a higher rate than production, government revenues from oil exports are already in decline.

Thus, nuclear power will halt the decline in government revenues by freeing more oil and natural gas for export. Iran's natural gas resources, if developed, would not be a substitute for cheap nuclear power, because gas is more profitable in other uses than in power generation.

The Iranian government fears that electricity shortages, slow economic growth, and high unemployment will turn the populace against it. As social tensions increase, political turmoil will follow.

Nuclear power offers the possibility of cheap, plentiful electricity, which will contribute to social and political stability. Iranian experts argue that, in considering the trade-off between internal unrest and external sanctions, the Iranian government must choose between domestic security and international security.

Domestic pressure could very well bring down the regime, but international pressure will not. History is on the side of the Iranian government. The oil weapon, but this is highly unlikely. It is not in Iran's interest, under any scenario, to decrease oil exports, let alone halt them.

However, domestic pressure, a sense of nationalism, and the need to improve its bargaining position with western countries might force the Iranian government to respond to harsh UN sanctions or an air attack on its nuclear facilities. But even under these extreme circumstances, Iran will still need its oil revenue. A symbolic cut or embargo, while possible, would have little impact on world oil markets.

Iran's government has more effective options to respond to attacks from the US and its allies. Its supporters in Iraq might cripple Iraqi oil exports from Basra, which would damage US plans in Iraq while boosting Iran's oil revenues, or limit the availability of fuel to the US army by attacking roads and bridges, especially the Kuwait City-Baghdad highway.

The world community will continue to pay a high price for the nuclear standoff, which will cast a shadow over world oil markets for years to come. Some argue that the issue has already raised oil prices by about $15 per barrel.

Ironically, an Iranian civilian nuclear program would enhance US and world energy security by making more oil and gas available in the global market. But America's determination to destabilise Iran and the Iranian government's determination to retain power reduce the likelihood of this scenario.