This week's Economist makes a pretty good case that Iran has won its confrontation with the West over the issue of nuclear technology, largely as a result of the international interpretation of the recent US National Intelligence Estimate on Iran. That should lead to the gradual unraveling of the measures by the US and its main European allies to block Iran's nuclear enrichment program. But as the old cliché goes, every ending is also a beginning, and it's worth thinking about the kind of future that could grow out of this result. While it could eventually increase tensions in an already fraught region, it might also alter the energy geopolitics of the Middle East and help to address one of the biggest problems facing oil-importing countries: the rapidly growing internal energy consumption of the world's main oil exporters.
Anyone doubting the pivotal nature of the NIE in changing the debate on Iran need only watch the video from the recent World Economic Forum in Davos, Switzerland. In a panel on understanding Iran's foreign policy, the Minister of Foreign Affairs of the Islamic Republic of Iran, Manouchehr Mottaki, delivers the words of the NIE as his principal response to a question about Iran's nuclear ambitions, in his own articulate, minimally-accented English. (You have to skip almost exactly one hour into the video to get to this point. I can't fathom why the WEF folks didn't overlay the simultaneous translation of Mr. Mottaki's earlier Farsi statements, and those of Mr. Hashemi, a key advisor to President Ahmadinejad, into the video.) But without taking anything away from the impressive Mr. Mottaki, the more forthright comment came from the Bahraini banker on the panel, Khalid Abdulla-Janahi, who suggested that everyone in the region is pursuing nuclear power, even if that means that the question of weaponization becomes one of when, not if.
Now, if the idea of nuclear weapons widely distributed among Syria, Egypt, Iran, Israel, and Saudi Arabia is the stuff of nightmares, a Middle East in which the rapidly growing economies of the region lack access to nuclear power might not be much better. According to the International Energy Agency, oil demand in the region is growing at 5-6%/year, adding roughly 1 million barrels per day of consumption since 2004, not far behind the growth of demand in China and India that has garnered so many headlines. Nuclear power could provide a handy alternative to burning all the oil that consumers in China, India, Europe and the US would like to purchase, delaying the arrival of a global peak in oil exports and the economic shockwave that would accompany it. Nuclear power plants can't be built overnight, however, even with hundreds of billions of petrodollars floating around.
Fortunately for those of us who remain suspicious of Iran's intentions, in spite of the NIE and the public rhetoric of undeserved persecution from Iran's officials, the Economist sees a possible way out of the present dilemma. It lies in abandoning demands for the cessation of uranium enrichment as a precondition to negotiations, but with that offer open only for a specified window, rather than indefinitely. Both sides need a face-saving way to sit down with all of the options on the table, and that just might be it. Perhaps the US administration could even foster the creation of a joint, bi-partisan position on this that the leading presidential candidates could endorse, reducing Iran's incentive to wait for a better deal with the next administration. In the meantime, it's an open question when the substantial oil-price risk premium that traders and analysts have attributed to the tensions over Iran's nuclear program will begin to abate, or whether the whole notion of risk premia retains any real meaning, when supply and demand are so precariously balanced.