By Siddharth Varadarajan

The nuclear issue has so come to dominate contemporary analysis about the hostile relationship between the United States and Iran that one tends to forget the role that oil is also playing in the slow but seemingly inevitable slide towards confrontation and conflict between the two countries.

To a certain extent, the absence of oil from the equation is understandable. The United States has not had direct access to Iranian crude for nearly two decades now, though American subsidiaries were free to buy and even import oil from Iran until the Clinton administration imposed a blanket ban on trade with Iran in 1995 as well as any oil development deals of the kind the erstwhile government of Hashemi Rafsanjani had offered the Dutch subsidiary of Conoco earlier that year. In response to complaints from American companies that international rivals would step in to fill the void, the U.S. Congress passed the Iran-Libya Sanctions Act (ILSA) of 1996 threatening sanctions on foreign companies that crossed the $40 million trigger for investment in Iran’s hydrocarbon sector. To date, however, the ILSA penalties have not been invoked against foreign investor.

Contradictions

But if the U.S. has been able to live with this self-imposed boycott of Iranian oil all these years and not bothered to use the financial tools it has at its disposal, what explains the sudden sharpening of contradictions? Perhaps concerns about terrorism or nuclear weapons are really what is driving the Bush administration’s current policy towards Iran after all. Not so, argues Roger Howard, in this timely and well-argued book on the challenge posed by Iranian oil to the hegemonic interests of the U.S.

The starting point of Howard’s analysis is precisely the unintended dialectic that ILSA produced. When the U.S. sought to impose extra-territorial sanctions on third country (non-U.S.) companies investing in the Iranian energy industry, it had assumed its threat would have a deterrent effect. While smaller players were indeed deterred, ILSA also created opportunities for companies from France, Russia, Japan, India, Malaysia, China and elsewhere. By playing the interests of these countries against the U.S., Iran has been able to undermine American power.

Challenges

Howard argues that the convergence between Iran’s oil resources and the political conditions created by the U.S. boycott of Iran are undermining American power in three distinct ways. First, it is putting increasing strain on Washington’s relations with its allies like the European Union, Japan and even Pakistan, all of whom would like to pursue a closer energy relationship with Tehran. Second, Iran is building stronger political and economic links with Russia and China and even India, which further reduces America’s room for manoeuvre. Third, Iranian oil undermines U.S. power directly by serving as a source of revenue for the Islamic regime in Tehran.

The book’s core chapters take the reader through each of these three ways in which Iranian oil challenges U.S. interests. Howard has assembled considerable information on the manner in which the need for energy and the shortsightedness of American policy have helped fracture alliances built by the U.S over half a century. Though the author has underestimated somewhat the American capacity to browbeat its allies — the Japanese company, INPEX, did finally abandon its plans to invest $2 billion in the lucrative Azadegan oil field — his general point about the Iranian ability to use their energy resources to create political space for themselves is well taken. It is precisely for this reason that the Bush administration is finding it difficult to get the U.N. Security Council to impose truly crippling sanctions on Iran despite the hysteria it has managed to generate over Tehran’s civil nuclear programme.

In policy terms, Howard argues that Washington’s long-term goal of bringing about a change in official Iranian attitudes towards America would perhaps be better served by ending the energy embargo. If the U.S. were to drop its hostility towards the Iran-Pakistan-India pipeline project, for example, and the pipeline were to be built, Iran would acquire a stake in regional stability. Howard says that this, in turn, “could arguably help to moderate the ‘aggressive’ and ’reckless’ foreign policy that its enemies in Washington say it has…” An end to the U.S. embargo would also, by creating more economic opportunities with Iran, increase the standard of living there and perhaps moderate the country’s politics. The problem, however, is the extent to which Iran has been demonised in the U.S.

Oil interests

If Howard’s book deals exclusively with Iran, Garry Leech provides a very lucid overview of American oil interests in regions as diverse as Iraq, Central Asia and West Africa.

In all oil-rich regions of the world, the thrust of Washington’s policies has been the desire to impose neo-liberal reforms in order to open up the energy sector to foreign investment and reverse the effect of the oil nationalisation wave of the 1970s when multinational oil majors were squeezed out of upstream activities. Where this has not been possible through political diktat, Leech argues that the U.S. has not hesitated to use military force (as in the case of Iraq), or corruption (as in the case of Africa). Venezuela under Hugo Chavez is one of the few major oil producers that has not only refused to succumb to this pressure but has actually taken measures to further limit the role of foreign oil companies. The author predicts that other energy-rich countries and regions will eventually be forced to confront the erosion of sovereignty that Washington is seeking.