Wednesday, May 11, 2005

Friedman Half Right
Tom Friedman's column in today's New York Times deals with nuclear proliferation in Iran and North Korea. Rather than blaming US policy towards these countries, he suggests that Europe, with respect to Iran, and China, vis-a-vis North Korea, possess sufficient leverage to eliminate these proliferation threats unilaterally. He proposes a very simple solution in each case, and one of them is right on target. Unfortunately, the other ignores a key energy issue and would likely provoke a response for which the whole world would pay dearly.

First, Mr. Friedman is correct in pointing out North Korea's near-total dependence on China for key aspects of its economy, particularly fuel and electricity. A serious threat by Beijing to cut these off, even for a short time, would bring the Hermit Kingdom to its knees--and to the bargaining table. Any desperation attack Mr. Kim might be tempted to launch in response would quickly grind to a halt for lack of petroleum products. I think it's safe to assume that the aim of the Administration's much-criticized six-country strategy for dealing with North Korea is to encourage China to use its leverage in just this way. It's not clear what else will prevent a nuclear arms race in North Asia.

If only the situation with regard to Iran were so simple. While Iran depends heavily on trade with Europe, the EU and the rest of the world also rely on Iranian oil. We'd better assume that the mullahs understand that as well as we do. They certainly remember the impact on global oil prices the last time their production was pulled from the market, resulting in the highest oil prices in over a century. As I pointed out in an article just published by Geopolitics of Energy, the journal of the Canadian Energy Research Institute, current oil market conditions have raised Iran's market leverage to a 25-year high. Iran's oil exports of 2.5 million barrels per day exceed the current supply capacity cushion of all other producers. A retaliatory boycott by Iran could send prices even higher than the $81/barrel level we saw in 1980 (expressed in 2005$.)

(Here's another angle to consider: Which country bordering Iraq gains the most from the persistent Iraqi insurgency that is killing hundreds of Shi'ites a week and tying down 140,000 American troops, effectively preventing them from getting involved in any other problems in the region?)

While some credible tough talk from Europe would certainly get Iran's attention in a way that no US diplomacy or threat can achieve, it must be part of a comprehensive international approach that ought to be transferred from the relatively toothless International Atomic Energy Agency to the UN Security Council as soon as possible. While that might still result in endless wrangling, it would at least bring together all the major players in a venue that Iran could not dismiss out of hand.

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