By Clifford Kupchan, CLIFFORD KUPCHAN is a director at Eurasia Group, a political risk consulting firm.
April 23, 2006
IRAN’S KEY ALLY in the current nuclear crisis is not Russia or China. It’s oil. Tehran can easily drive up prices and is already beginning to do so to rattle the West. As the crisis escalates, Washington’s diplomatic partners will become gravely worried about their energy supplies. In the end, Iran’s petro power will probably trump Western diplomacy.
Just look at what’s happening: Tehran’s bravado announcement April 11 that it had mastered key nuclear technology drew censure from world capitals. But it also drove oil prices to more than $70 a barrel on fears that increasing tensions or future military strikes might disrupt Iranian exports and damage Western economies. Prices have risen more than $8 a barrel in less than three weeks, primarily because of Iran.
Tehran’s oil leverage is formidable, flowing from its role as the world’s fourth-largest producer of oil and its strategic location abreast the Strait of Hormuz, through which 20% of the world’s production passes. Iran produces 4 million barrels of oil a day, about 5% of world production, and exports 2.5 million barrels. And it has used oil to build a web of relationships that make key countries dependent on its supplies.
Today, Iran supplies China with 4% of its oil, France with 7%, Korea with 9%, Japan with 10%, Italy with 11%, Belgium with 14%, Turkey with 22% and Greece with 24%. Those dependencies will create increasing unease over U.S. attempts to pressure Tehran. If the U.S. continues to seek economic sanctions against Iran in the nuclear crisis — or if it continues to hint at the possibility of military action — Tehran will increasingly use petro power in three ways.