Monday, September 13, 2004

Joining the Club--But Why?
I have to admit to being perplexed by the controversy over Iran's nuclear ambitions. In particular, I'm baffled by the degree to which the international community seems to accept that Iran might want to possess a complete nuclear fuel cycle (i.e. the ability to produce their own reactor fuel and reprocess the spent fuel) for some motivation other than wanting nuclear weapons. After all, as a report I cited in an earlier blog (March 12, 2004) put it, the difference between a country with a civilian nuclear fuel cycle and one with nuclear weapons is largely one of intent.

If you consider the main reasons that a country might choose to have nuclear power plants and nuclear fuel processing, most of them can be ruled out in the case of Iran. First, although Iran's consumption of primary energy grew by 75% between 1992 and 2002, to 5.9 quadrillion BTUs/year (compared to US consumption of 97.6 "quads"), it produces 10.4 quads/year of oil and natural gas and has reserves of over 800 trillion cubic feet of the latter, nearly five times as much as the US and second only to Russia. That works out to about an 80-year supply of their current energy use. Iran is hardly short of primary energy.

A slightly more sophisticated version of the energy shortage argument turns on preserving oil and gas for export to earn hard currency, by shifting domestic power generation to nuclear. This doesn't really hold water, either, since with vast untapped gas reserves it should be much more cost effective to generate additional export income by investing the cost of the nuclear program in LNG export facilities.

I think we can also rule out environmental concerns as a driver. Even though Iran is a signatory to the Kyoto Treaty on greenhouse gases, and nuclear power plants are one solution to generating emissions-free electricity, Iran's economy is critically dependent on the world's appetite for hydrocarbon fuels--with their accompanying emissions--and nuclear power plants won't change that.

Perhaps I'm missing something, but the only other rationale I can see besides the obvious one has to do with national prestige. That played a big role in Iran's previous nuclear ambitions, under the Shah, but in today's world this is a particularly expensive and dangerous way to try to impress one's neighbors. If this is the driver, we should actively encourage the mullahs to find another arena for competition.

So if we were to call a spade a spade, here, what would be the outcome? The US has had economic sanctions in place against Iran since the mid-1980s, and they have been effective mostly against US companies whose foreign competitors weren't under such constraints. Little impact on Iran is apparent. Any action to restrain Iran would have to be multilateral and strongly enforced.

Could the world do without Iran's oil and gas just now, if international sanctions were imposed? I think this takes us to the crux of the issue. With Iraq's production frequently interrupted by sabotage, and with global oil demand bumping up against supply limits, Iran is in the driver's seat. Invading or embargoing Iran would be a short path to $100 oil, and there are plenty of folks around who remember 1978-9, the last time Iran's oil went off the market.

This is about as cynical as I get, but it seems to me that Iran is very clearly on a path to getting nuclear weapons and will receive a "get out of jail free" card from the world because of its critical importance as an oil supplier. What am I missing?

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