Implications of a Nuclear Iran for the World Economy

Options for the G20 leaders meeting in Washington 

While high-level foreign ministry officials from the five permanent members of the U.N. Security Council -- the United States, France, Britain, China and Russia – and Germany failed on Thursday in Paris to strengthen sanctions against Iran,[1] [2] leaders from the G20 developed and emerging countries may be more successful at a gathering Friday and Saturday in Washington [3] and find an avenue outside the U.N. to isolate the Iranian regime -- from cutting off loan guarantees and expanding financial sanctions, to banning the export of refined petroleum to Iran.

The Washington meetings fall a few days after Iran said it test-fired a new generation of long range surface-to-surface missiles capable of striking Israel and southeastern Europe with greater precision. The test was another violation of U.N. Security Council resolutions by Iran. [4] [5] [6] Late last month, the chief of the U.N.’s atomic watchdog told the U.N. General Assembly that Iran is continuing to block his agency from verifying whether the nation has any ambitions for nuclear weaponry [7]. The gas centrifuge uranium enrichment plants in Natanz are spinning and the construction of a heavy water reactor at Arak continues. [8] 

A nuclear Iran would pose significant danger to the world economy

The pursuit of nuclear weapons by Tehran poses a threat not only to Iran’s neighbors, but also to the world community [9]. Its disputed nuclear program could trigger a nuclear arms race, [10] divert funds earmarked for other purposes and thus hamper strategies to solve the global financial crisis. [11]

Iran is already the world’s most active sponsor of terror and a principal founder and supporter of international terror organizations like Hezbollah. Should Iran create havoc by supporting or perpetrating a major terrorist strike, emergency measures to combat the global financial crisis would be severely harmed.

Most world powers streghtening economic relations with Iran

In the first seven months of this year, Germany approved nearly 2,000 business deals with Iran, an increase of 63 percent over last year. During that same period, German exports to Iran rose 14.1 percent. French exports went up 21 percent during the first six months of the year. [12]

China National Offshore Oil Corporation (CNOOC) and Iran’s Pars Oil and Gas Company (POGC) finalized an agreement to develop Iran’s Yadavaran oil field in exchange for the supply of liquefied natural gas and they are currently negotiating prices. [13]

Russia says the U.N. Security Council resolutions do not legally prevent Moscow from completing nuclear fuel shipment to Iran's Bushehr plant. [14]

The Swiss power company Laufenburg (EGL) signed a long-term agreement with Iran to bring natural gas to Europe [15]. The deal secures the delivery of 5.5 billion cubic meters of gas per year through a pipeline scheduled to be complete in 2010. [16]

Italy's power company Edison and Iran are planning to pump more than a billion cubic feet of Iranian gas to Europe per day [17]. Furthermore, Italy and Iran have signed $1.5 billion in agreements providing for the joint construction of three 2,000-megawatt thermal power plants -- two in Iran and one in Turkey, and several hydroelectric plants in Iran with a total 10,000-megawatt capability. [18]

Turkey is due to finalize a gas deal with Tehran in November. According to the Turkish Daily “Yeni Shafaq”, Turkey and Iran have completed talks about investment and gas production. [19] 

Leveraging refined oil to hinder Iran's nuclear weapons development

While the financial crisis has transformed into a worldwide economic recession, a number of Iranian officials considered this crisis God’s curse upon the West and believe that God is protecting Iran from its harm [20] . However, experts argue that the rapid drop in oil prices due to the global financial crisis has particularly severe implications for Iran [21]. Iran’s extraordinarily heavy dependence on imported gasoline could be used by the world nations to peacefully create decisive leverage over the Islamic Republic. [22]

In recent months, Iran has purchased nearly all of this gasoline from mainly European: companies:

• Vitol (Switzerland)
• Trafigura (Switzerland/Netherlands)
• Total (Total)
• British Petroleum (UK)
• Reliance Industries (India)

If these companies stopped supplying Iran, the Iranians could replace only some of what they needed from other suppliers -- and at a significantly higher price. Neither Russia nor China could serve as alternative suppliers. Both are themselves also heavily dependent on imports of the type of gasoline Iran needs. Were these companies to stop supplying gasoline to Iran, the world-wide price of oil would be unaffected -- the companies would simply sell to other buyers. But the impact on Iran would be substantial. [23] 


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 References

[1] "World powers discuss Iran, no breakthrough seen," Reuters, Nov 13, 2008, http://news.yahoo.com/s/nm/20081113/wl_nm/us_iran_powers_1

[2] "Iran sanctions on table at Paris meeting," Telegraph.co.uk, November 13, 2008, http://www.telegraph.co.uk/news/worldnews/middleeast/iran/3451599/Iran-sanctions-on-table-at-Paris-meeting.html?tr=y&auid=4229664

[3] “What world leaders want from Washington summit,” AP, November 13, 2008, http://news.yahoo.com/s/ap/20081113/ap_on_go_pr_wh/meltdown_summit_priorities_2

[4] "World Power Meeting Yields No Breakthrough on Iran Nuclear Issue," VOA, November 13, 2008, http://www.voanews.com/english/2008-11-13-voa15.cfm

[5] "Iran tests precision missile able to reach Europe," AP, November 12, 2008, http://news.yahoo.com/s/ap/20081113/ap_on_re_mi_ea/ml_iran_missile_test_7

[6] "Iran claims success in tests firing long-range missiles," November 13, 2008, http://www.iht.com/articles/2008/11/13/africa/13iran.php

[7] "IAEA's Head Concerned About Iran, US Talks Would Help," easyBOURSE, November 11, 2008, http://www.easybourse.com/bourse-actualite/marches/update-iaea-s-head-concerned-about-iran-us-talks-would-help-559690?tr=y&auid=4229665

[8] "Arak Heavy Water Reactor Construction Progressing", by David Albright and Paul Brannan, ISIS report, November 13, 2008, http://www.isisnucleariran.org/assets/pdf/Arak_13November2008.pdf

[9] "Iran's Nuclear Ambitions: Two Paths to the Bomb, Another Path to Peace," by Ambassador Gregory L. Schulte, U.S. Permanent Representative to the UN, Vienna, November 13, 2006 http://www.state.gov/p/nea/rls/rm/2006/76078.htm

[10] "Iran could spark new nuclear arms race," AP, May 20, 2008, http://www.msnbc.msn.com/id/24722068/

[11] "Congress examines $700 billion rescue program," by MARTIN CRUTSINGER, AP, Nov 13, 2008
http://ap.google.com/article/ALeqM5ioHc80xKMiATnqCpK0cDKJzk_nPQD94E0F0G0

[12] "Berlin ♥ Iran – II," WSJ, October 16, 2008, http://online.wsj.com/article/SB122410947451238107.html?mod=googlenews_wsj

[13] “CNOOC, NIOC Agree on Development Plan for Iran N Pars Gas Field, Technology and Business Petroleum,” November 13, 2008 http://www.tbpetroleum.com.br/news/see/id/13796/titulo/cnooc-nioc-agree-on-development-plan-for-iran-n-pars-gas-field-

[14] "Russia will keep fuel delivery to Iran," PressTV, November 13, 2008, http://www.presstv.ir/detail.aspx?id=75272§ionid=351020104&tr=y&auid=4229687

[15] „Gasgeschäft mit Iran unterzeichnet,“ Neue Zürcher Zeitung, March 18, 2008, http://www.nzz.ch/nachrichten/schweiz/gasgeschaeft_mit_iran_unterzeichnet_1.691317.html

[16] „Iran and Swiss firm sign gas purchase deal,“ Reuters, March 17, 2008, http://www.reuters.com/article/innovationNews/idUSDAH73468720080317

[17] “Iran-Italy commercial gas deal is coming,” New Europe, January 4, 2008, http://www.neurope.eu/articles/81371.php

[18] „Analysis: Turkey-Iran energy ties,“ United Press International, November 30, 2007, http://www.upi.com/International_Security/Energy/Analysis/2007/11/30/ analysis_turkey-iran_energy_ties/2595/    

[19] „Turkish energy minister to visit Iran in November,“ IRNA, October 26, 2008, http://www.tehrantimes.com/index_View.asp?code=180830

[20] "Iran: Nuclear Success and Economic Collapse," Asharq alawsat, October 25, 2008, http://www.asharq-e.com/news.asp?section=2&id=14518