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The race for Iran - -

By Flynt Leverett

The Race for Iran
Published: June 20, 2006

Washington

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Harry Campbell

AS the world watches the political maneuvering over restarting nuclear talks with Iran — this time with American participation — few are paying attention to a broader strategic competition that has started between the United States, Russia and China. Ultimately, this competition will decide not only the direction of Iran's nuclear activities but also its economic, political and military role in the Middle East and beyond. The outcome hinges on which countries will assume dominance in developing Iran's enormous oil and natural gas reserves.

Unfortunately, by refusing to consider a "grand bargain" with Iran — that is, resolution of Washington's concerns about Tehran's weapons of mass destruction and support for terrorism in return for American security guarantees, an end to sanctions and normalization of diplomatic relations — the Bush administration is courting failure in its nuclear diplomacy and paving the way for Russia and China to win the larger strategic contest.

Iran has the world's second-largest proven reserves of conventional crude oil, after Saudi Arabia, and the second-largest reserves of natural gas, after Russia. Its relatively low production levels make it one of the few states with the potential to greatly increase its exports of both oil and gas over the next two decades.

As the world economy during this period will rely increasingly on the Middle East and the former Soviet Union for its energy needs, Iran's putative status as a hydrocarbon superpower will take on ever greater strategic importance. Add in its location, its population of nearly 70 million (the largest in the Middle East) and its ambitions to regional leadership, and the significance of Iran's future international role is undeniable.

However, to expand its energy exports, Iran needs a great deal of capital and advanced technology from outside — at least $160 billion over the next quarter century according to the International Energy Agency. Washington of course does all it can to block exactly such investment — barring American energy companies from seeking business in Iran and threatening European and Japanese companies with fines and cutoffs of American components.

These measures — along with repressive Iranian policies that scare off foreign investors — have had an impact: since the Islamic Republic opened its oil and gas sectors to foreign energy companies in the early 1990's, it has attracted only $15 billion to $20 billion in European and Japanese investment. And as the nuclear issue has heated up, prospects for substantial increases in Western investment have virtually evaporated.

A senior Iranian diplomat told me this month that Iran can no longer "wait for the West," and Tehran is now looking for alternative investors. In recent years, China has emerged as a potential large-scale partner. But while China can provide capital, its state-owned energy companies are not much more technically capable right now than Iran's. It will be a decade at least before China can fill all Iran's technical gaps.

This is where Russia comes in. Although Russian energy companies could not offer quite the same level of expertise as Western firms in the complexities of manag



    
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