Ian Bremmer Project Syndicate - Like North Korea, the Iranian government will not shy from a showdown over its nuclear program. Why should it? A nuclear weapon is the ultimate guarantee that the United States can never do to Iran what it did to Iraq. Moreover, this struggle with the US rallies much-needed domestic support.
What, then, can the US do to undermine Iran’s position? As the world’s fourth largest oil exporter, Iran has profited mightily from the tripling of global oil prices over the last four years. Its economic stability is dependent on oil revenues, so it is here that Iran’s rulers are vulnerable.
American diplomats are never going to persuade the UN Security Council to impose sanctions on Iran’s energy exports. But the Bush administration can seek ways to contain global energy prices – and it should begin by refusing to be baited into escalating tensions whenever Iranian President Mahmoud Ahmadinejad pleases.
Ahmadinejad has proven resourceful in driving the diplomatic conflict. His government has rejected international calls to halt uranium enrichment, ignored UN-imposed deadlines, armed Iraqi militias, supplied Hezbollah with weapons for attacks on Israel, denied the Holocaust, and staged military exercises near the Strait of Hormuz, through which 40% of the world’s sea-traded oil passes. All these provocations add upward pressure on oil prices, enriching the Iranian government.
When Supreme Leader Ayatollah Ali Khamenei hinted that Iran could play the oil card, US Secretary of State Condoleezza Rice dismissed the idea. “Let’s just remember that Iran is some 80% dependent on oil in its budget,” she said, so it is “not really able to live with a disruption.”
But if Iran pulls modest amounts of its oil from international markets, price increases are likely to offset (perhaps completely) any loss in revenue from the supply cut. In addition, threats to the Strait of Hormuz would allow Iran to force prices up without any reduction in output. It is not an accident that virtually every public move Iran’s government has made in the international arena over the past year has added risk to energy markets.
At times, the US has effectively – if unintentionally – undercut Iran’s position. This summer, the Bush administration offered Iran direct talks. In September, Bush made an unexpectedly low-key speech to the UN General Assembly. Resistance to sanctions from Russia, China, and France has persuaded US officials to “allow more time for diplomacy” before pushing for punitive action in the Security Council.
All of these choices helped return slack to energy markets. Oil prices have fallen from above $78 per barrel in mid-July to less than $60 in early October. The drop – due in no small measure to an easing of tensions over Iran’s nuclear program – is costing the Iranian government money, compounding the regime’s domestic problems.
Inflation in Iran is rising, perhaps to as high as 20%. On October 1, Khamenei called on Ahmadinejad to address the growing problem. There are price freezes on certain subsidized goods and services, and rising inflation makes these subsidies even more expensive for the government. Indeed, the government indicates that it may begin rationing gasoline. Unemployment stands at about 12%, and is probably twice as high among young people.
The US can undermine the Iranian regime by avoiding statements and actions that help drive energy prices higher and bolster Iran’s economy. Administration officials should lower the political temperature. They should again offer Iran direct talks. Bush should invite Ahmadinejad to Washington. Better yet, invite him to Crawford. Make him breakfast.
Washington can also press the Saudis, who control virtually all of the world’s spare capacity, to keep their output high to contain prices. Saudi Arabia’s ruling Sunnis are more threatened than is the US by Iran’s support for a shift in the regional balance of power toward Shia Muslims.
Yes, Ahmadinejad will probably find a way to re-escalate the conflict. No one can stop Iran from threatening the Strait of Hormuz. But no one can blame the US for that when Bush is offering to talk.
Iran probably needs two or three years to develop a nuclear weapon. How strong will Ahmadinejad’s domestic position be then? If the US does not provide him with threats that help rally domestic support, his failure to revitalize Iran’s economy will erode his standing at home. Lower oil prices would mean less money to spend on domestic projects that buoy his popularity – or on the nuclear program.
If cutting into Iran’s oil income fails to weaken Ahmadinejad, the US would retain military options. But undermining his domestic standing by limiting Iran’s revenues stands a better chance of succeeding than diplomatic efforts to persuade the regime to suspend uranium enrichment voluntarily, or coercive sanctions.
Easing tensions will not win Bush points with those who prefer a muscular strategy. But the administration’s confrontational approach is failing, because it is precisely what Iran’s rulers want.

Ian Bremmer is President of Eurasia Group, the political risk consultancy, and author of The J Curve: A New Way to Understand Why Nations Rise and Fall.

Copyright: Project Syndicate, 2006.
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