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Iran: $100 a barrel in celebration of 100 years?

Will Iran celebrate the 100th anniversary of its oil discovery with $100 petroleum?

By Shirzad Azad

Oil prices have surpassed a record US$97 a barrel. Given the growing geopolitical tensions in the Middle East involving an imminent war between the Turks and the Kurds over the future of oil-rich Kirkuk and the prospect of an independent Kurdish state, and the current standoff about Iran's nuclear program, petroleum prices may cross over $100 a barrel in coming months.

Despite the indispensible role of the West, and the United States in particular, in creating and escalating diverse tensions in the Middle East and among the oil suppliers of the Persian Gulf region, ironically it is the West itself that will be forced to suffer from the fuel price hike and the following consequences of a high-priced energy on the world economy.

Oil functions as the lifeblood of the global economy and any increase in petroleum prices has serious effects and, in some cases, devastating pains on big economies in both developed and developing countries. Cheap oil has long been an important engine of rapid economic growth and development in the West and the East.

For instance, it was more than one and half decades ago when American economist Alan Freeman pointed out that each $1 fall in the price of a barrel of petroleum transfers roughly $5 billion a year from Third World countries to North America, and the difference between oil at $20 a barrel and oil at $25 a barrel means the transfer of $70 billion to $100 billion from the poor and impoverished South to the rich and prosperous North. Considering the sharp rise in global oil consumption over the past decade, there is no doubt these figures are even more astounding today.

Regarding the new surge in petroleum prices, the West's quandary over Iran's nuclear issue is of paramount importance. For Iran, the nuclear program is simply a matter of national security aiming to counterbalance the country's chronic energy shortage in a not that far future. Any American uncalculated harsh policy and irrational behavior in bombing the country would obviously force the Iranians into defensive and retaliatory measures ranging from the closure of the world's oil throat, the Hormuz Strait, to attacking oil tankers and possibly targeting major oil fields in the southern part of the Persian Gulf. Such a worst-case scenario might cost the health of all oil-importing economies dearly.

The whole point about the United States invading and occupying Iraq was oil; the hidden and unspoken fact behind the West's fuss over Iran's nuclear program is also related to the issue of oil in one way or another.

What the West prefers is a weak and defenseless Iran vulnerable to being bullied and comfortable with being conquered, whenever the necessity comes, as happened for Iraq in 2003. The West fears that an Iran equipped with nuclear technology may dash its hopes of classifying the country as another "cakewalk" in Western geostrategic calculations and grand strategies.

Because of its location at the juncture of energy-rich Central Asia and the Persian Gulf, with domination over the Strait of Hormuz, which a majority of tankers carrying Middle East oil passes through, Iran enjoys a very crucial strategic location in the world. It is also a main obsession in all considerations of the great powers with interests in the region. This makes sense of why hardly any day passes without Iran being in the headlines.

Oil was first discovered in Iran in May 1908, and then in Iraq shortly after World War I. Three decades after the discovery of oil in Iran, in 1938, oil was discovered in Saudi Arabia, which is at present the largest petroleum-producing country in the world. Iran's current crude oil reserves are estimated at 137 billion barrels, or 11.6 percent of the world's total reserves. At the same time, Iran has 29,000 billion cubic meters of natural gas, or 15.3 percent of total global reserves.

While oil prices are rising, we have a couple of months left before Iran prepares to celebrate the 100th anniversary of its oil discovery. The continuation of current circumstances in the region only makes it predictable that the Iranians will celebrate the epoch-making event of its discovery of oil with $100-a-barrel petroleum prices.

When it comes to the Persian Gulf region, a quick glance at history reveals that oil prices are disarmed before key political developments. The longer the stalemate over Iran's nuclear issue, the higher the petroleum prices -- and this is undoubtedly not good news for oil-thirsty economies. Hard policies or even military options to settle the crisis only make matters worse, which is to say that U.S. President Bush's prophecy about World War III may come true.


Shirzad Azad is an East-West Asian Relations Researcher at Aoyama Gakuin University in Tokyo.

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