Tuesday, August 05, 2008

Ebneyousef--Attacking Iran: Probable Economic Consequences (Middle East Economic Survey)

Middle East Economic Survey


No 31


Comment by William O. Beeman

Elements of the Bush administration evidently think that attacking Iran would be cost-free, as they did with Iraq. Hosseein Ebneyousef, an oil expert tells the sobering truth.

Bill Beeman
University of Minnesota


Attacking Iran: Probable Economic Consequences

By Hossein Ebneyousef

The following article was written for MEES by Mr Ebneyousef. Since 1988 he has been the President of Washington-based International Petroleum Enterprises, having previously worked for ARCO for 14 years (e-mail Ebneyousef@AOL.com).

Considering the already overstretched US military assets, its engagement in two major and costly theaters of war in Iraq and Afghanistan, deteriorating security conditions in Pakistan and Lebanon and Iran’s apparently softer approach on the nuclear issue, I am not sure that a military attack on Iran is imminent (that is, if one attributes a minimal level of rationality to the decision makers). Even an effective military blockade of Iran, which is an act of war in any case, does not seem feasible in light of Iran’s size, strategic location and lengthy maritime and land borders. Here, I would like to address the global economic impact of such potential actions, as it would likely be much more drastic and long lasting than has so far been explained.

Despite the existence at the time of more than 4.4mn b/d of spare oil production capacity worldwide, the limited nature of the reduction in the total oil output of the exporting countries, and the short duration of the implemented policy, the 1973 Arab oil embargo was a turning point for the oil and natural gas business. Oil prices never retreated to the pre-crisis level but kept going up by more than 400% into the next energy shock, which took place six years later. Notably, global oil output during the same time frame increased by more than 22% – even the Gulf producers raised their output by more than 20%. Therefore, it is reasonable to expect substantially higher oil prices for a longer period of time as a result of introducing any additional threat of a military attack.

Inflicting damages to oil facilities – intentionally or otherwise – can and will reduce production capacity. With today’s high cost of materials and services and severe manpower shortage, repairs would prove to be highly costly and time consuming. A similar but more manageable condition existed during the Iran-Iraq War and the subsequent reconstruction era in both countries. Thus, actual military operations have the potential to raise oil prices even further and for yet longer periods of time. The same is also true for post-natural disaster recoveries. For instance, the 2005 hurricane damage in the US Gulf coast is not yet fully repaired three years later, and its impact is still reflected in the current production figures.

Military conflicts have the tendency of spreading beyond their intended scopes, and could be devastating particularly in a region that houses close to two-thirds of the global oil reserves, with the probability of driving oil prices to even higher levels for a longer time interval and causing more ‘collateral damage’.

Unlike in the 1970s or the 1980s:

The industry now has very little spare oil production capacity left anywhere in the world;

Resource nationalism is on the rise;

Economic sanctions have eliminated up to 5mn b/d of oil production capacity from the market;

Strategic stocks have grown at a lower rate relative to the growth of global oil consumption; and

There are higher oil prices and high uncertainty over future prices, forcing refiners to minimize the size of their commercial stocks.

In short, at present the oil industry’s support systems are very limited and incapable of modifying the current and future risks. Therefore, I hope authorities realize the seriousness of the issue at hand and the potential disastrous consequences of making a wrong move at this crucial juncture. Runaway oil prices have the potential to force the Western economies, particularly that of the US which is already weakened by the housing crises and the declining dollar value, into a collapse.

John Bolton continues disinformation on Iranian nuclear program

Commentary from William O. Beeman:

It is astonishing that the Wall Street Journal continues to give Ambassador
John Bolton a standing platform to spread disinformation about the Iranian
nuclear program in the article below. He presents the misleading information currently being
promulgated by the American Enterprise institute and the Wasington
Institute for Near East Policy that the difference between Low Enriched
Uranium and High Enriched Uranium is trivial. This presupposes that Iran
actually has the reliable equipment to produce the High Enriched Uranium,
or the wherewithal to weaponize that material, which it does not, as Dr.
Behrad Nakhai, a real nuclear scientist, and I pointed out in an article on
July 16
Mr. Bolton writes: "every indication is that Iran is dispersing its nuclear
facilities to unknown locations . . ." What is the "every indication" that
he talks about. This is is some kind of fantasy on his part, because there
is no proof of this whatever. Finally, we have more alarmism about Iran's
conventional weapons, none of which can now deliver a nuclear weapon. Of
course, Mr. Bolton is not above simply asserting that Syria and the
Palestinians are so crazed and cowed by Iran that they would launch an
attack on Israel from their own territory, as if they were servile minions
of Tehran with martyr-like unconcern for the safety of their own people and
nations. Dr. Nakhai and I also pointed out in our article that Iran would
have to test a bomb before it used one, and this could never go undetected.
Iran is years away from anything resembling Mr. Bolton's apocalyptic

Bill Beeman
University of Minnesota
President, Middle East Section, American Anthropological Association.

August 5, 2008

While Diplomats Dither, Iran Builds Nukes
August 5, 2008; Page A19

This weekend, yet another "deadline" passed for Iran to indicate it was seriously ready to discuss ending its pursuit of nuclear weapons. Like so many other deadlines during these five years of European-led negotiations, this one died quietly, with Brussels diplomats saying that no one seriously expected any real work on a Saturday.

The fact that the Europeans are right -- this latest deadline is not fundamentally big news -- is precisely the problem with their negotiations, and the Bush administration's acquiescence in that effort.

The rationality of continued Western negotiations with Iran depends critically on two assumptions: that Iran is far enough away from having deliverable nuclear weapons that we don't incur excessive risks by talking; and that by talking we don't materially impede the option to use military force. Implicit in the latter case is the further assumption that the military option is static -- that it remains equally viable a year from now as it is today.

Neither assumption is correct. Can we believe that if diplomacy fails we can still take military action "in time" to prevent Iranian nuclear weapons? "Just in time" nonproliferation assumes a level of intelligence certainty concerning Iran's nuclear program that recent history should manifestly caution us against.

Every day that goes by allows Iran to increase the threat it poses, and the viability of the military option steadily declines over time. There are a number of reasons why this is so.

First, while the European-led negotiations proceed, Iran continues both to convert uranium from a solid (uranium oxide, U3O8, also called yellowcake) to a gas (uranium hexafluoride, UF6) at its uranium conversion facility at Isfahan. Although it is a purely chemical procedure, conversion is technologically complex and poses health and safety risks.

As Isfahan's continuing operations increase both Iran's UF6 inventory and its technical expertise, however, the impact of destroying the facility diminishes. Iran is building a stockpile of UF6 that it can subsequently enrich even while it reconstructs Isfahan after an attack, or builds a new conversion facility elsewhere.

Second, delay permits Iran to increase its stock of low-enriched uranium (LEU) -- that is, UF6 gas in which the U235 isotope concentration (the form of uranium critical to nuclear reactions either in reactors or weapons) is raised from its natural level of 0.7% to between 3% and 5%.

As its LEU stockpile increases, so too does Tehran's capacity to take the next step, and enrich it to weapons-grade concentrations of over 90% U235 (highly-enriched uranium, or HEU). Some unfamiliar with nuclear matters characterize the difference in LEU-HEU concentration levels as huge. The truth is far different. Enriching natural uranium by centrifuges to LEU consumes approximately 70% of the work and time required to enrich it to HEU.

Accordingly, destroying Iran's enrichment facility at Natanz does not eliminate its existing enriched uranium (LEU), which the IAEA estimated in May 2008 to be approximately half what is needed for one nuclear weapon. Iran is thus more than two-thirds of the way to weapons-grade uranium with each kilogram of uranium it enriches to LEU levels. Moreover, as the LEU inventory grows, so too does the risk of a military strike hitting one or more UF6 storage tanks, releasing potentially substantial amounts of radioactive gas into the atmosphere.

Third, although we cannot know for sure, every indication is that Iran is dispersing its nuclear facilities to unknown locations, "hardening" against air strikes the ones we already know about, and preparing more deeply buried facilities in known locations for future operations. That means that the prospects for success against, say, the enrichment facilities at Natanz are being reduced.

Fourth, Iran is clearly increasing its defensive capabilities by purchasing Russian S-300 antiaircraft systems (also known as the SA-20) directly or through Belarus. In late July, Secretary of Defense Robert M. Gates and his spokesman contradicted Israeli contentions that the new antiaircraft systems would be operational this year. Assuming the Pentagon is correct, its own assessment on timing simply enhances the argument for Israel striking sooner rather than later.

Fifth, Iran continues to increase the offensive capabilities of surrogates like Syria and Hezbollah, both of which now have missile capabilities that can reach across Israel, as well as threaten U.S. troops and other U.S. friends and allies in the region. It may well be Syria and Hezbollah that retaliate initially after an Israeli strike on Iran's nuclear facilities, thus making further strikes against Iran more problematic, at least in the short run.

Iran is pursuing two goals simultaneously, both of which it is comfortably close to achieving. The first -- to possess all the capabilities necessary for a deliverable nuclear weapon -- is now almost certainly impossible to stop diplomatically. Thus, Iran's second objective becomes critical: to make the risks of a military strike against its program too high, and to make the likelihood of success in fracturing the program too low. Time favors Iran in achieving these goals. U.S. and European diplomats should consider this while waiting by the telephone for Iran to call.

Mr. Bolton, a senior fellow at the American Enterprise Institute, is the author of "Surrender Is Not an Option: Defending America at the United Nations" (Simon & Schuster, 2007).