Iran is using oil and the euro to attack the United States

Is the biggest threat Iran poses to the United States really its nuclear ambitions or is it petropolitics? In July the Iranian government quietly reaffirmed plans to create by next year a euro-denominated exchange in oil, natural gas and other petroleum products.

If successful, such an exchange could start to lap at the walls of the two existing oil exchanges London's International Petroleum Exchange (IPE) and the New York Mercantile Exchange (NYMEX) both owned by American companies.

If the billions of dollars in oil sales ever got going in euros, experts say, that could dry up the demand for dollars that the heavily indebted US economy depends on and it could mean big trouble for the US economy.

It is enough to make the Great Satan-loathing visionaries behind the Iranian regime salivate. The chances of success, however, seem quite remote at least in the short term.

"At this point, it's really to poke their finger in the eye of the US," says Jean-François Seznec of Columbia University's Middle East Institute in New York. "Certainly part of their idea is to weaken American economic hegemony." But whether it is the right tactic to achieve that strategy, he suggests, is questionable.

Still, as much as a pipe dream as the plan may be, it suggests the lengths to which Iranian leaders could go to weaken Western (and largely American) controls on the international economy, analysts say. It also hints at the integrated thinking that backs up the Iranian government's vision.

"It's part of a very intelligent, creative Iranian strategy to go on the offence in every way possible and mobilise other actors against the US," says George Perkovich, an Iran expert at the Carnegie Endowment for International Peace in Washington.

Indeed, the exchange proposal is not the only evidence of Tehran's geopolitical plottings. Experts note that Iran has approved huge energy deals with both India and China deals that not only cement Iran as an energy power, but also could create powerful friends for Tehran's ambitions.

Iran signed an agreement this year to provide India with liquefied natural gas over a 25-year period and signed a similar agreement last year to supply China with natural gas over a 30-year period. Both countries are in a deal to invest in and develop Iran's Yadaravan oil field the kind of investment that US oil companies are prohibited from making because of US sanctions while Iran presses to build a major pipeline through Pakistan to India. "Iran is definitely looking East, rather than West," says Seznec, "and that will matter".

Iran continues its geopolitical play even as pressure against it mounts over its nuclear programme. With international meetings planned this month to address the nuclear issue, new accusations are being made that claim to shed new light on a connection between Iran's nuclear programme and its military.

At a Washington press conference recently, Iranian regime critic Alireza Jafarzadeh presented information claiming that Iran has used "reverse engineering" to deconstruct a Ukrainian missile it acquired in 2001 to build its own long-range missile. The new missile could be fitted with a nuclear warhead, Jafarzadeh claimed.

Jafarzadeh also presented information purporting to substantiate links between the nuclear network of Pakistani nuclear engineer A.Q. Khan and the Iranian military, specifically the Revolutionary Guards.

Jafarzadeh, formerly of the US office of the National Council of Resistance of Iran, is considered of dubious reliability by some experts because of his connections to the Iranian regime's opposition. The National Council is actually on the US list of terrorist organisations.

But Jafarzadeh points out that information he presented on Iran's nuclear programme in 2002 turned out to be accurate. Some Iran experts back his claims as important additions to growing evidence against Iran.

Jafarzadeh's information shows that "at the same time Iran sought nuclear bomb capability, it also pursued development of long-range missiles capable of carrying nuclear warheads", says Raymond Tanter, an Iran expert with close ties to the Bush administration's toughest Iran critics.

Little to fear

As for any plans to build an alliance of Asian countries against the West, experts note that its energy deals don't necessarily mean that Iran can count on its new oil partners as political allies, experts say.

But they also note that already Iran is thought to have little to fear from any eventual referral of its nuclear programme to the United Nations Security Council because of its ties to Russia and China.

Iran's success so far at building powerful friendships to counter efforts by the United States and the European Union to squelch its nuclear ambitions has led some observers in particular pro-Iran partisans or the most virulent detractors of the Iranian regime to highlight the oil-exchange proposal.

In particular, in web page commentaries, it is being lauded by the former, while the latter sound alarm bells.

Iran probably stands to gain little from its talk of establishing a petro-euro exchange except for some propaganda value, say experts in energy markets.

"It's purely rhetorical," says Roger Diwan, managing director for oil markets at the Petroleum Finance Company in Washington. "In order to have these [oil] contracts, you have to have a lot of people invest in them and most of those people are in places such as New York and London," he adds.

Yet even as remote as the Iranian threat may be, others note that past attempts to create new markets have not been greeted warmly. None other than Saddam Hussain decided to sell oil only in contracts dominated in euros in the months before he was ousted by a US-led military invasion.

The Iranian regime is certainly not looking to provoke a similar reaction, experts say, but on the other hand it is taking similar stabs at the global economic system as it faces waves of mostly Western-based criticism. "Basically they are just throwing stuff out," says Carnegie's Perkovich, "throwing out these ideas in an effort to stay on the offensive."

- The Christian Science Monitor