Wednesday, May 17, 2006

Dealing With Iran

I'm traveling, so postings will be briefer and more sporadic for the rest of the week. A pair of op-eds caught my eye yesterday, because they dealt with one of the largest risks overhanging the oil markets: the confrontation over Iran's nuclear program. Both articles proposed ways to resolve the impasse without bombing Iran's nuclear facilities. Neither proposal is simple, and both are fraught with danger, in one case of a shattered global non-proliferation system, and in the other of a direct military confrontation with the dominant military power in the Persian Gulf--other than us.

Henry Kissinger's op-ed in the Washington Post describes an intricate but plausible diplomatic approach for dealing with Iran and North Korea. Its chief drawback may be that it would probably require someone with Dr. Kissinger's skills to implement successfully.

The other article comes from the Wall Street Journal (subscription may be required,) and it lays out a clever, energy-based counter to Iran's "oil card": cutting off Iran's imports of the gasoline its refineries can't produce in sufficient quantity to satisfy domestic demand. (I haven't vetted the statistics involved.) Pulling this off without triggering the oil export reduction the whole market fears would take great finesse, and nerves of steel.

Given that the direct use of force appears doubtful for reasons of its broader consequences in a post-Iraq world, I suspect our range of real options falls somewhere between these two scenarios. If you are wondering whether the Iran risk in the oil markets will resolve to the upside or downside, you could do worse than considering the implications of these ideas.

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