Why Washington's Iran Policy Could Lead to Global Disaster
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Iran’s transaction costs are certainly increasing, its people are beginning to suffer economically, and it may have to reduce its exports somewhat, but the tensions in the Gulf have also caused the price of petroleum futures to rise in a way that has probably offset the new costs the regime has borne. (Experts also estimate that the Iran crisis has already added 25 cents to every gallon of gas an American consumer buys at the pump.)
Like China, India has declined to bow to pressure from Washington. The government of Prime Minister Manmohan Singh, which depends on India’s substantial Muslim vote, is not eager to be seen as acquiescent to U.S. strong-arm tactics. Moreover, lacking substantial hydrocarbon resources, and given Singh’s ambitious plans for an annual growth rate of 9% -- focused on expanding India’s underdeveloped transportation sector (70% of all petroleum used in the world is dedicated to fuelling vehicles) -- Iran is crucial to the country’s future.
To sidestep Washington, India has worked out an agreement to pay for half of its allotment of Iranian oil in rupees, a soft currency. Iran would then have to use those rupees on food and goods from India, a windfall for its exporters. Defying the American president yet again, the Indians are even offering a tax break to Indian firms that trade with Iran. That country is, in turn, offering to pay for some Indian goods with gold. Since India runs a trade deficit with the U.S., Washington would only hurt itself if it aggressively sanctioned India.
A History Lesson Ignored
As yet, Iran has shown no signs of yielding to the pressure. For its leaders, future nuclear power stations promise independence and signify national glory, just as they do for France, which gets nearly 80% of its electricity from nuclear reactors. The fear in Tehran is that, without nuclear power, a developing Iran could consume all its petroleum domestically, as has happened in Indonesia, leaving the government with no surplus income with which to maintain its freedom from international pressures.
Iran is particularly jealous of its independence because in modern history it has so often been dominated by a great power or powers. In 1941, with World War II underway, Russia and Britain, which already controlled Iranian oil, launched an invasion to ensure that the country remained an asset of the Allies against the Axis. They put the young and inexperienced Mohammed Reza Pahlevi on the throne, and sent his father, Reza Shah, into exile. The Iranian corridor -- what British Prime Minister Winston Churchill called “the bridge of victory” -- then allowed the allies to effectively channel crucial supplies to the Soviet Union in the war against Nazi Germany. The occupation years were, however, devastating for Iranians who experienced soaring inflation and famine.
Discontent broke out after the war -- and the Allied occupation -- ended. It was focused on a 1933 agreement Iran had signed with the Anglo-Iranian Oil Company (AIOC) regarding the exploitation of its petroleum. By the early 1950s, the AIOC (which later became British Petroleum and is now BP) was paying more in taxes to the British government than in royalties to Iran for its oil. In 1950, when it became known that the American ARAMCO oil consortium had offered the king of Saudi Arabia a 50-50 split of oil profits, the Iranians demanded the same terms.
The AIOC was initially adamant that it would not renegotiate the agreement. By the time it softened its position somewhat and began being less supercilious, Iran’s parliamentarians were so angry that they did not want anything more to do with the British firm or the government that supported it.