by John M. Curtis
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Copyright June 6, 2006
All Rights Reserved.

hreatening to cut off oil in the Persian Gulf, Iran's Supreme Leader Ayatollah Ali Khamenei promised swift retribution should the U.N approve sanctions over its uranium enrichment program. While hope springs eternal, it's unlikely that Khameini or his hothead mouthpiece President Mahmoud Ahmadinejad will suspend or terminate uranium enrichment, believing that it's Iran's right under the Nuclear Nonproliferation Treaty. While the world prays Iran heeds the U.N.'s request, Wall Street and world markets became skittish about the prospects of an Iranian oil embargo, driving the Dow Jones Industrial Average into another nosedive. Federal Reserve Board Chairman Ben S. Bernanke didn't help matters expressing concerns over runaway inflation, fueling worries about future interest rate hikes. If Iran remains defiant, some type of confrontation remains inevitable.

      Bernanke said nothing about the U.S. oil monopoly that keeps a stranglehold on the economy, fueling today's inflation. Raising interest rates punish consumers and don't deal with the oil industry whose relentless price increases have damaged the economy. Allowing one industry to profit at the expense of all others, especially the airline business, shows gross mismanagement both at the Fed and the White House. It's no joke when runaway energy prices fuel inflation, force the Fed to raise rates and promise to tank the stock market. While the Fed likes to separate energy from core inflation, energy prices are inextricably tied to all businesses, particularly the transportation industry which counts on cheap fuel. Iran accounts for about 10% of the world's oil output. Any confrontation with Iran or blockade would send world oil prices rocketing to 100 a barrel.

      Bush has made it clear he has no intention of allowing Iran to build its first nuclear bomb. Uranium enrichment could be used for generating electricity or building A-bombs. When Ahmadinejad talks about joining the “nuclear club,” he's not talking about producing energy. Iran's threats about “wiping Israel off the map” make the best case for keeping A-bombs out of the Ayatollah's hands. Energy markets can't take more chaos without affecting world oil prices. “If push were to come to shove,” said Energy Secretary Samuel Bodman, referring to a disruption of oil from the Persian Gulf, the government could avert a crisis by tapping the Strategic Petroleum Reserve. Reassuring the stock market doesn't deal in the long run with a precipitous cutoff of Iranian oil. Any disruption in the Persian Gulf would have catastrophic consequences on oil prices and gasoline availability.

      Disrupting the world's oil supply out of Strait of Hormuz to the Indian Ocean would be an act of war on the civilized world. Posturing before Iran's official response to the U.N.'s proposal to end uranium enrichment, Khamenei tried to threaten oil markets and influence world opinion. U.S. Secretary of State Condoleezza Rice downplayed Khamenei's threat, citing Iran's need of oil revenues. While both countries wage a fierce propaganda battle, Wall Street knows the consequences of high stakes brinkmanship, watching oil leap past $73 a barrel. Yet oil prices alone account for a small part of the price at fueling stations. It makes one wonder whether Tehran's saber rattling represents a deliberate attempt to bolster oil prices during a period of rising supplies. Bodman's kidding himself that the Strategic Petroleum Reserve would compensate for disruptions in the Persian Gulf.

      Iran knows it has considerable influence over world oil markets. It's uranium enrichment program has been a source of national pride, with Ahmadinejad praising Iran's young nuclear engineers and scientists. Expecting the Ayatollah's regime to give up enrichment is like hoping for civilized behavior from North Korea's reclusive leader Kim Jong Il, whose own enrichment program has given him more muscle. Despite the denials, Khamenei knows that an A-bomb would give Iran unprecedented deterrence, forcing the U.S. to back down. When Pakistan got the bomb in 1998, it opened the door for third world countries to gain instant stature. If Iran had no nuclear capability, the U.S. wouldn't take Ahmadinejad seriously. While Russia and China have reluctantly signed on to the U.N.'s attempt to contain Iran's atomic ambitions, Iran doesn't threaten their national security.

      Tehran realizes that it's under intense international pressure to give up uranium enrichment. Russia and China reluctantly signed on to the U.N.'s agreement only after they agreed to take out any threat of sanctions. Iran wants to buy more time while it studies the agreement that calls for an immediate end to its uranium enrichment program. Ending enrichment would be a slap in the face to Khamenei and Ahmadinejad whose reputations have been staked on joining the “nuclear club.” Bush knows that without open verification by the U.N.'s International Atomic Energy Agency, any promise by Khameini and Ahmadinejad is worthless. Promising to hand over nuclear technology to Iran, the White House went out on a limb should Tehran take up the offer. Bush knows that the Ayatollah's slippery regime won't easily abandon it plans to process uranium and get its first A-bomb.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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