Sometime in the not too distant future, and probably before February 21st, Iran will claim it has made significant gains in industrial scale production of enriched uranium. This claim will be put to the test almost immediately and will place Iran under significant political and economic pressure. Recent reports in the New York Times and by the BBC have questioned whether Iran has really mastered the use of centrifuges to enrich uranium.To use a poker metaphor the question here is whether Iran has made a big bluff with a weak hand. The NY Times reports, "The many setbacks and outright failures of Tehran's experimental program suggest that its bluster may outstrip its technical expertise."
Iran's diplomatic negotiating style has been to put its opponents in a position of making one of two bad choices. The shoe may be on the other foot. Iran's weak point is its domestic oil industry. According to the Los Angeles Times a new US diplomatic campaign to dry up financing for oil and gas production in Iran is having an impact. The LA Times report provides examples of how effective the US pressure has been on Iran's oil industry. For instance, foreign investment in the giant Azadegan oil field, which requires $2 billion, has failed to materialize and Japan recently pulled back on its stake in the project. Norway, a major exporter of oil field production expertise, also imposed sanctions on Iran limiting financial and technical investments in Persian oil facilities.The International Energy Agency says Iran will need as much as $80 billion in new investments to boost its production to 7 million barrels a day by 2014. Currently, Iran pumps about 4 million barrels a day and exports about two-thirds of that production.
Iran's actions to promote its nuclear program may actually tighten the financial noose. Worse, Iran's internal oil production is increasingly going for internal use and not for export. Gasoline in Iran is subsidized at 35 cents/gal a price last seen in the US in the early 1970s. Iran put subsidized natural gas heating in its residential housing. Hossein Askarai, an expert on Middle East economies at George Washington University, says these fossil fuel subsidies cost the government 15% of its gross domestic product, a staggering number. Significant cuts to the subsidies because of declining oil export revenues, and inability to produce domestically, could destabilize the government. It is estimated that as much as 80% of Iran's revenues from exports are based on oil.The beefed up US military presence in the Persian Gulf may have the objective of sending a message to risk adverse investors about the wisdom of providing new funds to Iranian oil projects. It's gun boat diplomacy right out of Theodore Roosevelt's playbook and it may work. Modernization and upkeep of oil production and refining operations is a key priority for Iran. If they don't get new infusions of cash from international sources, the pumps could stop working or at least slow down enough to cause significant domestic unrest. Nicholas Burns, the number two man at the US State Department, said Friday Feb 9th that Iran is "digging a hole deeper for itself" over its claims about its nuclear programs
All this pressure may be having an effect. On Saturday Feb 10th Iran dispatched one of its top diplomats to a meeting with officials from the European union. What's pushing things along is a February 21st deadline by the United Nations which requires Iran to stop enriching nuclear fuel or face further financial sanctions. The Iranian government defied a United Nations Security Council deadline of August 31, 2006, to halt its uranium enrichment activities. The Security Council voted on December 23, 2006, to impose sanctions on the country and gave Iran a two-month deadline for its nuclear work to be frozen.
The February 21, 2007, deadline is creating new tensions between the US and European countries. Watch for news on the Munich Security Conference which is where the the other shoe may drop in less than two weeks. The dance has begun and everyone knows there aren't enough chairs to go around when the music stops on February 21st. Iran must stop its uranium enrichment or it may pay an economic price that it cannot afford. If Iran can drive a wedge between members of the UN Security Council, it may continue to pump oil and pursue its nuclear dreams for a while longer.