Get This Strait: Iran’s Position Threatens Free Trade

Is Iran the great Satan or a country that should be brought back into the community of nations, even made an ally of the United States?

The answer is that Iran is probably more stupid than menacing, but needs to be dealt with intelligently in any event.

Americans should understand that a lot more than oil and gas are at stake in the issue of Iran. The price of oil has risen in recent months, but Iran had little to do with that.

Rather, U.S. ability to guard the peace in a post-Cold War world and keep commerce flowing in its own interest and that of others is at stake. And last week that ability was under a cloud after President Clinton declared an oil and trade embargo on Iran--and other countries yawned.

U.S. allies said they would continue to do business with Iran; most commentators said the U.S. action would have no effect.

But U.S. business could lose out if Clinton’s policy gets no support from Germany, Japan, Russia and other countries; indeed, U.S. forces ultimately could have to put their lives on the line again in the Middle East.

The issue is not facing down Iran, a poor country despite the economy’s great potential, where 63 million people struggle because of wrongheaded government actions. Right now, Iran is behaving like an outlaw, trying to possess nuclear weapons and become top dog in the Middle East.

Weirdly also, non-Arab Iran has chosen to work against the peace process between Israel and its neighbors, even though most Arabs, including the Palestinians, support it. “On every issue, from domestic economic policies to regional tensions, Iran has been its own worst enemy,” says Vahan Zanoyan, senior director of Petroleum Finance Co., a Washington consulting firm.

Iran is not yet an open threat to its neighbors, but it’s making moves to become one. And that’s the trend the United States wants to nip in the bud.

So the issue is U.S. leadership in the post-Cold War world, in which the support of allies may not be automatic, but unity of purpose among the world’s major nations is critical, experts say. “Disunion and a downgrading of U.S. leadership could have serious consequences, particularly in the Middle East,” says Douglas Feith of Feith & Zell, a Washington law firm with many business contacts in the region.

That’s not vague diplomatic talk but a specific reference to the fact that the United States is the guarantor of peace in the Middle East, the protector of the flow of energy from the Persian Gulf.

Lately, Iran has aroused fears by beefing up armaments on the small Tunb Islands near the mouth of the gulf, through which passes at least half the world’s petroleum energy.

And more is happening in the region. In the tiny state of Qatar, on a peninsula bordering Saudi Arabia, the biggest industrial project in the world is under way. The Qatar Gas Project is building liquefied natural gas (LNG) plants and specialized tankers to transport the gas to Japan and South Korea, to Taiwan and possibly to China, as well as Turkey and Israel--which may get Qatar gas through Enron Corp. of Houston.

That Qatar project, in which Mobil Corp. is a key participant, provides a fascinating example of how the world really works.

It is a giant undertaking that will cost more than $30 billion to construct the facilities that liquefy, ship and regassify the output of Qatar’s vast fields, which were discovered 20 years ago. Massive investments, with a commitment of 25 years, are being made by electric companies in Japan, Korea and elsewhere. Mobil has investments in the Qatar projects, as do Mitsui & Co. and Marubeni Corp. of Japan. And Mobil is contributing its all-important LNG know-how, gained in projects in Indonesia in the 1970s and ‘80s.

But, a question: If Qatar’s gas was discovered 20 years ago, and LNG was developed in Indonesia at that time for Japan’s market, why wasn’t Qatar’s gas developed earlier? Because it was in an unsafe place. Nobody in Asia or anywhere else was willing to commit tens of billions of dollars to a 25-year project in a tiny country of fewer than 400,000 people in the Persian Gulf.

A guarantee of security was needed, say experts on the region, a sign that even after the Cold War, small nations would be protected. That guarantee, they say, was delivered in the Gulf War when the United States, in concert with most of the world’s nations, came to the aid of Kuwait.

That kind of unity is not easy to arrange these days. One explanation for the embargo is that Clinton had to cut off U.S. business with Iran because this week he will try to persuade Russian President Boris Yeltsin not to sell a nuclear power plant to Iran.

Others argue that more commercial connections will bring change in Iran. And they have reason on their side, says Judith Kipper, a Middle East scholar at Washington’s Center for Strategic and International Studies. “Iran helped the U.S. during the Gulf War and has made other overtures,” Kipper says.

So the world is more subtle today and the outcome of the Iran issue could be unpublicized compromise on all sides--delays in selling technology, a climb-down from arms buildups, informal conversations.

But it remains essential that Clinton get some support from allies. “If he doesn’t, he will have accomplished nothing and he’ll have hurt U.S. business,” says lawyer Feith.

Those hurt would include not only big oil companies that sold Iran’s oil on world markets in Europe and Asia, but U.S. oil technology companies that could look forward to a lot of work in Iran, where oil fields need maintenance and major gas fields await development.

For the moment, nothing will happen to the price of oil because of this embargo, says Bear, Stearns & Co. analyst Frederick Leuffer, who last month predicted action against Iran. “The oil price is stable at about $20 (a barrel) because there’s a balance between production capacity and rising world energy demand,” Leuffer says.

But it’s a delicate balance. “Any disruption in Saudi Arabia or the Gulf and the world would quickly be in a crisis once again,” he says.

The lesson of Iran for business people everywhere is that of the Qatar gas project: Peace and world commerce don’t just happen. They need to be protected--and supported.