Post by Sparky on Jan 30, 2007 9:14:16 GMT -8
How the Saudis plan to put oil squeeze on Iran
The Austrailian | January 29, 2007
IRAQ'S Vice-President Abd al-Mahdi has noted that the US has two options in the war: either they stay or they withdraw. But Mahdi pointed out that the Iraqis have no options.
"If we don't succeed in ending the violence with the present strategy, we just have to be patient and keep trying. Unlike the Americans, we don't have an exit strategy from Iraq."
The same was true, he said, of Iraq's neighbours -- Iran, Syria, Turkey and Saudi Arabia. This was why Iraqi politicians were urging US President George W.Bush to talk to these countries and warning the White House that any military attack on Iranian nuclear installations, whether by the US or Israel, could spill catastrophically into Iraq.
So why did Bush refuse to talk to Iran and Syria, as recommended by the Baker-Hamilton commission? Why instead did he seem to be increasing the military tensions with Tehran? Iraqi officials would not speculate on this beyond the obvious comment that "firmness from America could be a way of bringing Iran to the negotiating table".
But delving beneath the surface of this objective, three strands of a more interesting and hopeful strategy begin to emerge in conversations with Middle Eastern analysts and politicians.
Start with the premise that Washington is indeed being tough on Iran to strengthen the internal opposition to the confrontational policies of President Mahmoud Ahmadinejad. The purpose is not necessarily to trigger the removal of Ahmadinejad, but rather to shatter Tehran's grandiose delusions of regional hegemony and bring Iran into negotiations from a position of relative weakness, rather than its perceived strength.
Three strands of policy are now being directed to achieving this internal shift in Iranian politics. The first is the US effort to reduce the fighting in Iraq -- or failing that, at least to mount a show of strength against the Iranian-backed Shia militias and to remind Tehran that Washington retains its capacity to deploy overwhelming military force.
The second is the US sabre-rattling over Iran's nuclear program, especially the semi-public threats of Israeli bombing, perhaps even with tactical nuclear weapons. The White House's announcement that two aircraft carrier battle groups will move to the Gulf within a month or so are clearly a reminder that Washington still has plenty of firepower to attack Iran directly or to back Israeli bombing -- and also to protect international oil shipments through the Gulf against Iranian retaliation.
These deployments and public warnings do not necessarily suggest an attack on Iran is likely but rather that the US wants Iran to realise it is playing for very high stakes in its confrontation with the West.
The third strand of Washington's Iranian policy is less visible, but may well turn out to be more important. The idea is to thwart Iran's threatened hegemony with an economic pincer movement consisting of financial diplomacy on one side and energy policy on the other.
The main responsibility for this strand of policy rests not with the US or Israel but with the third member of the unlikely new anti-Iranian
alliance: Saudi Arabia.
The financial diplomacy consists not just of the sanctions against Iran agreed to by the UN Security Council last month but also in the donors' conference for Lebanon in Paris last week. The toughened UN sanctions are beginning to have some impact on Iran's domestic economy and on its ability to do business and raise money internationally.
Meanwhile, the Lebanon conference is demonstrating that the US-Saudi coalition can easily match and exceed the financial subsidies channelled by Iran to Hezbollah, Hamas and its other regional proxies. In doing this the Saudis' involvement is crucial because of their ability to spend large sums of money without the budgetary and political oversight faced by Washington.
At best, Saudi open-handedness would persuade key players, not only in Lebanon but also in Iraq and Syria, to desert the Iranian camp. At a minimum, Saudi efforts to buy support in the region would tempt Tehran into a bidding contest that the Iranian economy simply could not afford.
This brings us to the final and most interesting strand in the anti-Iranian policy nexus: the price of oil.
Iran's economy depends entirely on oil sales, which account for 90 per cent of exports and a roughly equal share of Tehran's budget. Since July, a barrel of oil has fallen from $US78 to just over $US50, reducing Tehran's revenues by about a third. If the oil price fell into the $US35 to $US40 range, Iran would shift into deficit, and with access to foreign borrowing cut off by UN sanctions, the Government's capacity to continue financing foreign proxies would quickly run out.
Iran has reacted to this threat by calling on OPEC to stabilise oil prices, but in practice only one country has the clout to do this: Saudi Arabia.
In a significant statement this month, Saudi Oil Minister Ali al-Naimi opposed Iranian calls for production cuts to halt the decline in oil prices. Naimi's pronouncement was cast as a technical matter unconnected with politics, but it seemed to confirm private warnings by King Abdullah that his country would try everything to thwart Iran's hegemony in Iraq and the region, whether by military intervention or more subtle economic means.
This policy was spelt out with surprising precision by senior Saudi security adviser Nawaf Obaid in an article in The Washington Post: "King Abdullah may decide to strangle Iranian funding of the Iraqi militias through oil policy. If Saudi Arabia boosted production and cut the price of oil in half, the kingdom could still finance its current spending. But it would be devastating to Iran, which is facing economic difficulties even with today's high prices.
"The result would be to limit Tehran's ability to continue funnelling hundreds of millions a year to the Shia militias in Iraq and elsewhere."
This article attracted huge attention in the Middle East and Washington, but was hardly noticed in the financial markets and business community.
But that was when the bulls still thought they commanded the oil market, and most analysts believed the only direction for oil prices to go was up. Maybe they should think again.
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