Sweet & Sour: Iran in US sights long before war on Iraq

Even before the first shot was fired in the US-led war against Iraq, the hawks in Washington were debating whether to go after Iran or Syria once Iraq was out of the way.

With Iraq now under US control, Iran is firmly in the firing line and, judging from recent declarations by its senior officials over allegations of a secret nuclear programme, the theocracy in Tehran is in defiant mood.

While few people believe that Iran could or would be invaded outright, the US has hinted that it might seek punitive measures against Tehran if it fails to make full disclosure of its Russian-built nuclear programme, which Iran insists is for peaceful purposes only.

It has been a bad month for Iran on the diplomatic front. But whatever the outcome of its latest battles with the International Atomic Energy Agency, the EU, the British Government, the Argentinian authorities and Washington, the implications for the world's energy balance are huge.

Iran is after Saudi Arabia the biggest producer of crude oil within Opec. It also holds the world's second biggest gas reserves after Russia.

The eight year war with Iraq which started barely a year after the Islamic Revolution in Tehran destroyed vital oil infrastructure and deterred foreign investment in its energy sector.

Later, the US' Iran/Libya Sanctions Act (ILSA), which threatens to penalize oil companies of any nationality which invests more than $40 million in Iranian energy projects, for a while scared off European multinationals.

When I visited Iranian Oil Minister Bijan Zanganeh at his office in Tehran last year, there was no electricity in his office.

Buy-back scheme

I later heard that power cuts are quite common in Iran. Zanganeh told me at the time how he feared that Iran had been left out in the race to attract investment to develop its enormous gas wealth.

Iran houses South Pars, the single biggest concentration of natural gas in the world. Qatar controls the North Field, the extension of South Pars. While Qatar has two massive Liquefied Natural Gas (LNG) plants running, dozens of gas customers around the world and expansion projects in the pipeline, Iran's gas development projects being conducted under so-called buy-back schemes have been plagued by delays and political infighting.

Under pressure

Now, negotiations between Iran and a Japanese consortium to develop Iran's huge Azadegan oilfield, have become tangled up in the nuclear controversy.

Deadlines have been missed as the Japanese have come under pressure from Washington to hold off signing a deal until Tehran agrees to sign the additional protocol to the non-proliferation treaty, a move that would allow the IAEA to conduct spot, unannounced inspections.

Having hinted last week that it might consider signing the additional protocol, Iran has now backed off and says it might review its relations with the atomic energy watchdog. In the meantime, Washington is again turning the screws on Iran, accusing the Iranians of harboring leaders of Al Qaeda, blamed by the US for the Sep 11 hijack attacks.

All of this pressure has weakened the hand of reformist President Ahmad Khatami while strengthening the argument of conservative opponents that attempts to open up to the West had weakened Iran politically and resulted in no diplomatic gains.

With Iraq still in the grips of a post-war security crisis, Saudi Arabia grappling with its own demons, the energy map of the Middle East is actually shrinking.

There are few places that Western firms can enter freely, except perhaps Libya, which, free of UN sanctions, is now open for business.

The opinions expressed in this column are those of the author and do not reflect those of Platts