Time for Part 2 of my two part series on
Iran. Part 1 is
here.
In Part 1, we analyzed the American accusations against Iran. In Part 2, we will look at what I think are the real reasons for the recent increase in hostile rhetoric against Iran.
Correction: In Part 1, I said the Iraq-Iran war began when President Reagan was in office. Thanks to an alert reader, I was corrected on this. It actually began a few months before Reagan was elected.
Last Thursday, Iran struck a tentative agreement with the EU on suspending its uranium enrichment program. The IAEA was set to deliver a report on Iran's activities last Friday but they are now waiting for the EU's response to Iran's latest offer.
As explained in Part 1, Iran has the right under the Nuclear Non-Proliferation Treaty to enrich uranium and develop nuclear capabilities, so long as they are peaceful in nature. Iran has repeatedly claimed its efforts are only to further civilian power needs while the U.S., Israel and other enemies of Iran have made accusations that it is a subterfuge to develop nuclear weapons.
When I saw that progress was being made in the negotiations between Iran and the European Union, I started looking for a hostile response from the United States. After doing research into the "Axis of Evil" rhetoric ongoing since the start of the Bush administration, I felt like there was more to this than the potential development of nuclear weapons. Therefore I was not surprised to see
this article from U.S. News & World Report.
Someone in the Bush administration purposefully leaked thousands of pages of classified reports to U.S. News & World Report, information which alleges and hints all kinds of evildoing on Iran's part. A closer analysis of the article however shows that most of this is speculation, eerily similar to the reports about Iraq when the Bush administration was gearing up for the invasion.
It's worth noting here that Iran first began to develop a nuclear program under the Shah's reign as American puppet.
There are several reasons why the Bush administration has Iran in its sights and I don't think nuclear weapons are at the top of the list. I've categorized what I feel are the real top three reasons.
Israel - Without a doubt, Iran and Israel are mortal enemies. Both nations have openly made hostile statements against each other. Israel has threatened to bomb Iran if it does not suspend its uranium enrichment program and Iran says it will retaliate if attacked.
Iran has also supported many terrorist groups (or freedom fighters, depending on your perspective) that operate against Israel. This includes both Hezbollah, which fought against Israel in Lebanon as well as Hamas in the intifadah.
Israel, which has nuclear weapons, has repeatedly used military force to ensure its monopoly in the Middle East. If Iran were to gain nuclear weapons, Israel would lose that advantage.
Iran has also acquired conventional ballistic missile technology from North Korea, now manufactured under the name Shahab-3 or "Meteor 3". The range of this missile could easily hit Israel should these two nations ever get into a war. And should Iran be able to equip these missiles with a nuclear payload, both nations would be in strike range of each other.
On other fronts, Iran has a modernized military, which will be discussed later in this article.
With the collapse of the Saddam Hussein regime in Iraq, Iran has made strategic moves to consolidate power in the region. Should the Shi'ite majority make significant gains in power during either the upcoming presidential or parliamentary elections, Iran might play a decisive role in its neighbor's affairs.
As Israel and the United States share a "special" connection, anything that is vital to the security or well-being of Israel plays a significant role in America's foreign policy decisions.
Oil (petroleum products) - It sounds almost like a cliche to say America's invasion of Iraq was about war, but it is true nonetheless that much of the United States' foreign policy is driven by a need to secure the production centers of this vital resource.
Some nations produce oil but keep most of it for domestic consumption. The United States falls into this category and few people know that it was the world's second largest producer in 2003 after only Saudi Arabia. The problem is the United States consumes twice what it produces.
What is of interest to the world is who has sufficient oil to export. According to the U.S. Department of Energy, last year the top ten exporters were:
- Saudi Arabia
- Russia
- Norway
- Iran
- UAE
- Venezuela
- Kuwait
- Nigeria
- Mexico
- Algeria
- Libya
Overlaying that list with Bush's foreign policy decisions, an interesting correlation became fairly apparent.
Saudi Arabia - Defended by U.S. troops even to this day, although numbers are greatly reduced from Gulf War 1
Venezuela - Brief coup failed to unseat Hugo Chavez. Coup members were tied to NED grants and other American funding sources.
Kuwait - Defended by U.S. troops
Algeria - Despite atrocious human rights record, an ally in the "War on Terror". Several visits from Powell and others to the region in support of the Algerian regime.
Libya - Gave up a few archaic chemical weapons factories in exchange for the lifting of sanctions.
With the exception of Iran, the only country on that list not an ally or major trading partner with the U.S. is Russia. If Iran's government was overthrown or changed, the U.S. government and western oil companies would have access to the fourth largest exporter of petroleum in the world.
What the cited list does not show however is the emerging importance of Caspian Sea oil. The Caspian Sea lies directly north of Iran and the oil fields therein are under the sovreignty of six different countries: Iran, Russia, Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan. The three largest sources belong to Azerbaijan, Russia and Kazakhstan.
The Bush administration has made great strides in increasing cooperation with Kazakhstan, Uzbekistan and Azerbaijan. The first two currently host U.S. military bases and Azerbaijan has received a lot of aid from the United States. Western oil companies have also financed an oil pipeline west from Azerbaijan through Georgia (now a U.S. ally) to Turkey that is expected to open early next year.
The "problem" with all this Caspian Sea oil is that the shortest, easiest way to export it would be via Iran. Iran has well-developed port facilities and an oil pipeline between the Caspian Sea and the Persian Gulf would be much shorter (and cheaper) than the one from Azerbaijan to Turkey. But as long as Iran's current government is in power, no western oil company wants to develop any pipeline there.
As the reserves in the Middle East are consumed, the "secondary" sources of oil such as the Caspian Sea and the west coast of Africa will become increasingly important.
And while petroleum products certainly are vital to the economy of the United States and its allies, it also plays a significant role in another domain.
Currency - I'm going to begin this section with a warning that I'm not an economist. I am simplifying the issue only for the purpose of clarification.
The U.S. dollar is literally backed by every barrel of oil sold on the world market. The impact of this is enormous in magnitude yet it is very rarely discussed or mentioned in the mainstream media.
Before 1971, a dollar was "backed by gold" which meant that the government had a specified amount of gold on hand for every dollar it issued. This meant that the U.S. could not print more dollars than it had gold in its reserve, but also meant that a dollar was worth something tangible.
With the advent of the "Federal Reserve" (which is not federal in the least), the U.S. dollar is not backed by anything. The Federal Reserve could sell as many dollars as it wants to because they are just colored pieces of paper, not backed by anything. The dollar is now a fiat currency.
However just as the U.S. dollar shifted from being backed by gold, it became "backed" by oil. This is a rather complicated issue to explain but essentially only certain markets exist where oil can be sold and this is always done in dollars.
What this means is that if Russia sells oil to Japan, it's paid for by U.S. currency. In fact, nearly two thirds of American dollars are spent outside the borders of the United States. If Russia, to continue with our example, wants to redeem those dollars, it (eventually) has to trade them for something of value in America. This is how the U.S. economy manages to stay afloat despite enormous trade deficits.
In essence, if Russia sells Japan a dollar's worth of oil, Russia then has to (eventually) trade that dollar for "real goods" or items of tangible value. The U.S. has thus devolved to become the "consumer of last resort".
Not only is oil sold in dollars but IMF loans are denominated in dollars as well, which means even countries with little need for oil (Mali for example) have their economies tied to the dollar. I have seen estimates that 2/3rds of all foreign countries' reserves (national holdings) are denominated in dollars and that half of the world's exports are denominated in dollars. In essence, the dollar's worth is now based on tangible (real) goods produced or held outside the United States.
If oil was sold on the international market via another currency, perhaps the Euro, this would seriously destabilize the United States. Countries would not need to have large dollar reserves. Imports would cost a lot more and the dollar would start to fall as it would no longer be "based" on the real asset of petroleum.
Has any country ever sold its oil for Euros? Saddam Hussein's Iraq did starting in November 2002. And if you think the invasion just four months later was a coincidence, I have a bridge to sell you in Arizona. Since the overthrow of the Hussein regime, Iraq's oil is now safely sold only for American dollars.
As a side note, while Hugo Chavez has not begun to sell Venezuelan oil for Euros, he has worked out a barter system with 13 South American countries. Every time Chavez "barters" oil for goods instead of selling it in dollars, the U.S. dollar is threatened.
Iran however, starting in 1999, began talking about selling oil in Euros. And it didn't surprise me in the least to see that the rhetoric against Iran was greatly increased after that time.
In 2002 an article appeared in an oil industry newsletter. Let's review:
US scrutiny of global banking since September 11 has spooked Iran into mulling a switch from dollars to euros for crude oil sales, its primary revenue earner, oil industry sources said.
Iran could deal a psychological blow against the struggling dollar if it forces customers to pay billions of euro every year for their oil imports.
"As a precaution, the Central Bank of Iran is looking into a switch away from dollar payments -- with the euro a favoured alternative," said an Iranian oil industry source. "The US is keen to know who is sending and receiving dollars and they may make it difficult to transfer our money, especially when they know it is for Iran," said an Iranian industry source.
Iran's Central Bank has yet to issue a final decision on whether to drop the US greenback, the international currency of oil, for its exports. A committee of experts is mulling the move.
A rough calculation shows Iran has earned at least $ 10 bn so far this year from crude exports, with oil revenues providing 80 % of its foreign income.
Revenue from Iran's daily crude sales of just under 2 mm barrels eventually returns to the Central Bank. But along the way, the money is transferred through a series of intermediary banks, mostly European. International bankers said all transactions involving large amounts of dollars are cleared through master accounts held in New York. And the New York Federal Reserve has access to information about such transfers, they said.
"After September 11, US authorities were chasing terrorist funds and they were questioning a lot of things," said a senior banker. "There were many wild goose chases."
Iranian sources said their banking colleagues have felt particularly hassled during the past several months, as Washington heats up its war of words on Tehran. This has encouraged Tehran to speed the pace of an ongoing debate to abandon the dollar as payment for oil sales.
In other words, despite the diplomatic hostility between the two nations, every barrel of oil that Iran sells is actually sold via the New York and London markets with the dollar as the currency.
Iran is a member of OPEC, which currently restricts all foreign sales to the American dollar. So is there any way for Iran to start selling its oil without having to resort to the currency of its foe?
The answer is close to completion and yet I've seen almost no mention of it in the American mainstream media. If it wasn't for the trade journals, I'd never even have heard of what Iran has planned.
In June 2004, Iran announced it was creating an oil bourse. The word "bourse" is a French word which means "exchange" and refers to an international market exchange where oil can be traded. Currently the only two oil bourses are in London and New York.
Should Iran's oil bourse be successful and sales be denominated in Euros, this will induce hedging of the Euro versus the dollar and fundamentally alter the prices of oil. Some reports show that both China and Russia, large trading partners with Iran, have begun to increasing their holdings of Euros.
According to the July 8, 2004 edition of Rigzone, an industry paper:
Iran plans to sign a deal by late August with foreign companies to create the country's first oil bourse, an Iranian oil official said Thursday...
... [Iranian Oil Ministry advisor Mohammed] Asemipour said the platform should be trading crude, natural gas and petrochemicals by the start of the new Iranian year, which falls on March 21, 2005.
He said other members of the Organization of Petroleum Exporting Countries - Iran is the producer group's second-largest producer behind Saudi Arabia - as well as oil producers from the Caspian region would eventually participate in the exchange.
From the Guardian, June 16, 2004:
The Tehran oil bourse is scheduled to open in 2005, according to its architect, Mohammad Javad Asemipour, who is a personal adviser to the Iranian energy minister.
"We are in the final stage of choosing a concession for what is going to be a very big development for us and the region," he said.
Some industry experts have warned the Iranians and other Opec producers that western exchanges are controlled by big financial and oil corporations, which have a vested interest in market volatility.
The IPE, bought in 2001 by a consortium that includes BP, Goldman Sachs and Morgan Stanley, was unwilling to discuss the Iranian move yesterday. "We would not have any comment to make on it at this stage," said an IPE spokeswoman.
Many of the contracts for crude oil being exported from producers such as Iran and Saudi Arabia are linked to prices for the UK North Sea Brent blend.
The Middle East producers would like to establish a rival Persian Gulf blend contract alongside hedging mechanisms that could operate around the new bourse.
The Tehran bourse is considered to be more likely to succeed because Iran exports 2.7m barrels a day and produces 13m tonnes of petrochemicals every year. The country has the second biggest oil reserves in the world behind Saudi Arabia.
It's fair to point out here that both the [London based] IPE and the Nymex market are both owned by western corporations. The Iranian bourse, should it be successful, would be outside the control of western companies (and governments).
Net Iran printed an interview in December 2003 with Iran's Deputy Oil Minister. Here is an excerpt:
An economy without oil for our country would be similar to economy without electronics for Japan or without agriculture for Australia or without dairy for Denmark. Therefore, oil is our advantage and we cannot separate it from the economy. The Iranian economy must be planned on the basis of oil, but in four categories: oil as energy;
oil as forex earner; oil as the feed for downstream industries; and oil as a source of national power.
With regard to oil and the national power, we think in terms of national security. Due to Iran's strategic situation between the Caspian Sea and Persian Gulf, our oil rich neighbors need us because they lack our scientific and technological capacity. In addition to being an oil rich country, Iran enjoys high industrial and technological capacity. Therefore, we must define our joint energy and oil projects with our neighbors. It means that we must make a link among national security matters of various countries. To develop, we need stability and security.
Now, imagine for a moment that you are a member of the leadership of Iran. Regarding recent events, what policies would you advocate?
In January 2002, you were labeled a member of the "Axis of Evil" by the most powerful country in the world. Just over a year later, one member of the "Axis of Evil" was invaded and its government forcibly overthrown. The other member of the "Axis of Evil" was not attacked and hasn't even had to submit to the humiliation of international inspectors.
Both the country to your west (Iraq) and the country to your east (Afghanistan) are now occupied by the country which calls you the "Axis of Evil". And now that invader is issuing forth similar rhetoric against you that it used before invading Iraq. What can you do to protect yourself?
- Have the weaponry you need to protect yourself. If North Korea, with all of its unmistakable Weapons of Mass Destruction is left untouched while Iraq, with UN inspectors reporting no weapons, is attacked, what would you do? I know I'd start enriching uranium, building ballistic missiles and perfecting my nuclear weapons technology as quickly as I could. And even before I could fully acquire those weapons, I'd make darn sure that everyone knew I was close to perfecting them. In the meantime, I'd develop all of my conventional warfare abilities, including the purchasing of hundreds of Sunburn anti-ship missiles to protect my shoreline.
- Develop powerful friendships. Even though I might lose a few bucks on the deal, I'd sign large energy contracts with India and China. I'd also buy my nuclear fuel from Russia. In other words, if the U.S. and its allies are your enemies, make friends with the other powers on the globe. China and Russia have veto power over U.N. Security Council resolutions and there's nothing the U.S., Britain and France can do about it.
- Finance and support the enemies of my enemies. If Israel is your enemy, finance its enemy (radical Palestinians). If the U.S. wants to seize control over your holy sites, finance its enemy (Moqtada al-Sadr). This is elementary geopolitical strategy.
- Use your own resources to your advantage. Iran has enormous oil reserves and that gives it a lot of clout. Make energy deals with your friendly neighbors, like Turkemenistan. Sell your oil in the currency of your customers (Euros) not your enemy (dollars).
Russia is expected to clear 11
billion dollars for the five proposed nuclear power plants it is building in Iran. It is unknown how many millions of dollars it has made selling Sunburn and other missiles to Iran.
China has secured 70 billion dollars worth of oil and natural gas from Iran. India has agreed to spend 3 billion dollars on securing natural gas from Iran.
And if Iran can succesfully start selling its petroleum products in Euros, that's a net loss of a 100 billion dollars per day (2.3 billion barrels at $45 per). Now is it becoming clearer why Iran is suddenly such a "threat" to U.S. interests?
Is Iran a growing power in the world and a threat to U.S. dominance? Undoubtedly. Are the publically stated reasons the real issue behind the increase in hostile rhetoric? I don't think so.
I hope this two part series helped to clarify what I think are the pertinent issues concerning this country. Any and all feedback is most certainly welcome.
I'll leave you with this sermon delivered by the Supreme Leader of the Islamic Revolution Ayatollah Seyyed Ali Khamenei on November 11, 2004:
"This symbolic measure will surely have a deep impact on world's political arena as well as the struggles against the global arrogance of the US," Ayatollah Khamenei said in a sermon at Eid Al-Fitr prayers.
He recalled the atrocities of the Zionist regime against the Palestinians and the suppression of the Iraqis by US troops, and said such crimes are signs of an "undeclared war" that the global arrogance has started against Islam.
Elsewhere in his remarks, Ayatollah Khamenei underscored the importance of the next year's presidential elections in Iran, and called for efforts to encourage massive public turnout at the polls.
Religious fundamentalism mixed with a call for democratic participation in the elections. Sound familiar?
Dark Red = Occupied by U.S. troops
Red = Hosts U.S. troops
Yellow = Major U.S. ally
Peace