Monday, August 09, 2004

Just what the skittish global oil market wants to hear.
The diplomatic poker game over Iran's nuclear programme is intensifying, with warnings by the Islamic Republic that it would take tough measures in response to any attempt by the US to block its development through the United Nations Security Council.

In interviews in Tehran and New York, Iranian officials reacted defiantly to statements by the Bush administration that it would press the International Atomic Energy Agency next month to refer the issue to the Security Council. The US move is widely seen as a first step towards possible sanctions against what the US suspects is a covert weapons programme.

�You don't expect a country like Iran to be pushed around and take it sitting down,� said Mohammad Javad Zarif, Iran's UN ambassador, who said it was an issue of national dignity. �What is important is that our integrity is not to be bargained or up for sale. We react very strongly when we see people trying to undermine our national integrity.� . . .

A second Iranian official, who asked not to be named, told the Financial Times in Tehran the situation �was on the verge of something drastic�. He said Iranian security planners expected the IAEA would pass a critical resolution in September and that the US might even attack targets in Iran.

�If there is more criticism in September, Iran will remove the [IAEA] cameras [at nuclear sites] and start injecting the gas [the final stage of uranium enrichment],� he said. �Iran notes the example of North Korea, a regime the US is negotiating with�.

The official, a regime insider, said �radicals� were now thinking of �stupid things against the US and even Europe�. He recalled the days when Iran �carried out assassinations� in Europe and recalled that bombings in Madrid this year changed the course of a general election. Europe, he said, had long been aware that Iran sought nuclear weapons and had earlier supplied dual-use technology.
I think the West has much less to fear from Iranian-backed terrorism than from Iranian cutbacks in crude oil exports. With demand slowly outpacing supply and a host of political worries sending the market over $44/barrel, just a hint of a cutback as a response to Western pressure over the nuclear program could send oil into the stratoshpere. Iran is already making money hand over fist off of the current market. A little less production at a lot higher price would be well worth the economic effects -- and worth the political costs as well.

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