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Iran and Global Energy Security: Nuclear Policy Raises Tensions
Business Monitor International, March 2010, Pages: 40
This report examines the rising tensions in the Middle East over the Iranian nuclear programme, and discusses the geopolitical, economic and oil market implications of a potential attack.
Tensions Rising Over Iran
International tensions over Iran's nuclear programme are rising following the announcement in February by President Mahmoud Ahmadinejad that the Islamic Republic had begun to enrich its uranium stockpile to a higher grade. This latest move effectively brings Iran closer to possessing nuclear weapons, seemingly confirming the suspicions of many policy-makers in the West that this is Tehran's ultimate goal. Iran continues to insist that its nuclear programme does not have military applications, but against the backdrop of the recent discovery of a secret nuclear facility near Qom, the breakdown of a proposed nuclear fuel swap deal, and Iran's ongoing expansion of its Natanz enrichment plant, Western governments are not prepared to give Tehran the benefit of the doubt. As a result, the West is pushing for harsher UN sanctions on Iran so as to pressure the regime into ceasing its uranium enrichment activities.
Tougher measures could achieve this goal, though we are sceptical. The Iranian regime's ideological and financial investment in its nuclear programme is considerable, and it has repeatedly stated that it will not be forced into halting enrichment. With Tehran insistent on its 'nuclear rights', the longer the diplomatic impasse continues the greater the risk that Israel will launch a pre-emptive strike on the Islamic Republic's nuclear facilities. Indeed, Israel regards a potential nuclear-armed Iran as a serious existential threat, and would be prepared to face international opprobrium to stave off such an outcome.
In this special report, we assess the likely implications of an Israeli strike on the Islamic Republic's nuclear facilities. With Iran's ability to retaliate against Israel via conventional military means rather limited, its 'best' course of action would be to unleash its proxy Hizbullah, which it funds and supplies with weapons. This would bring war to northern Israel and Lebanon, and could induce Hamas and Syria to also attack Israel. Tehran would regard Washington as having given Israel the green light, but would be loath to engage far-superior US forces in a shooting war. Instead, it would likely attempt to stir up trouble in Iraq and Afghanistan, creating serious headaches for US forces there. Iran's 'nuclear' option would be to try to shut down the Strait of Hormuz. Oil prices would certainly spike in the event of an Israeli strike, providing investment opportunities mentioned within this report. However, we believe that Tehran is unlikely to follow this path as it needs all the oil export revenues it can get.
Indeed, with the Iranian economy facing considerable economic challenges - we focus in on two key pressure points: the fragile banking sector and the overvalued currency - and numerous threats to political stability, the regime is highly dependent on the anchor of oil money. Even with the petrodollars flowing in, we forecast relatively weak economic growth over the coming decade. Coupled with Iran's deep societal tensions, we therefore have considerable doubts over the sustainability of the current political system. As such, we outline a number
of scenarios for political evolution.
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