Courtesy Reuters

Sticks and Straws

By Matthew Kroenig

To the Editor:

Pollack and Takeyh correctly point out Iran's vulnerability to economic pressure. It was, after all, primarily a fear of referral to the UN Security Council and the possibility of follow-on sanctions that convinced Tehran to suspend its uranium-enrichment activities in a deal with the Europeans in October 2003. Unfortunately, the authors' corresponding policy recommendation greatly overestimates the ability of the United States and its allies to influence Iran's economic well-being.

Pollack and Takeyh assert that the United States, western Europe, and Japan should promise economic investment if Tehran abandons its nuclear ambitions, arguing that this will help convince Tehran that "they can have nuclear weapons or a healthy economy, but not both." They overlook the fact, however, that Iran will draw on a great deal of foreign investment even if the West and Japan withhold investment entirely. The United States and its allies do not control the spigots for global financial flows. Iran is a globalizing economy sitting on huge oil and natural gas reserves. Capital is already beginning to rush in from states outside the West that have formidable economic incentives to overlook Tehran's nuclear peccadilloes.

For example, China and India are two rising powers with an increasing demand for energy, leading them to invest heavily in the Iranian economy. In November 2004, Iran and China signed a 25-year $100 billion "deal of the century" to develop Iran's natural gas industry. As part of the agreement, Iran will export 10 million tons of liquefied natural gas every year to China, and China's state oil company will undertake gas exploration and drilling, the construction of pipelines, and related services. A similar oil deal is currently under negotiation that could increase the total amount of energy agreements between Tehran and Beijing to $200 billion.

Recently, India has also shown a willingness to invest significantly in Iranian energy. In January 2005, India signed a $40 billion deal with the National Iranian Oil Company. India will develop two Iranian oil fields and a gas field and has promised to import five million tons of Iran's natural gas every year for the next 25 years. Currently, the two countries are also making final arrangements for the construction of an Iran-India gas pipeline.

To be effective, the use of economic pressure to influence Iran's strategic nuclear calculations must extend well beyond the confines of the West. A comprehensive strategy would certainly require the United States to reach for sticks, but in placing undue confidence in the effects of withholding Western investment, Pollack and Takeyh are grasping at straws.

MATTHEW KROENIG

Public Policy and Nuclear Threats Fellow, Institute of Global Conflict and Cooperation, and Ph.D. candidate in Political Science at the University of California, Berkeley