Hit Iran Where it Hurts

Co-authored by Joshua Goodman

Barack Obama's recent call for a “world without nuclear weapons” represents a daunting challenge in an era of increased nuclear proliferation. No more so than in the Middle East, where Iran's pursuit of nuclear weapons is stirring similar ambitions throughout the region.

At least 12 Middle Eastern countries, including Saudi Arabia, the United Arab Emirates and Egypt, are actively pursuing nuclear programs. And with Iranian and North Korean assistance, Syria was on its way to developing its own nuclear reactor before Israel's successful Sept. 6, 2007, strike on the al-Kibar reactor.

The existence of the Syrian nuclear program surprised the International Atomic Energy Agency (IAEA), revealing, once again, the limitations of relying on the international community to effectively regulate nuclear proliferation.

If President Obama wants to stop the growth in nuclear-armed nations, arresting Iran's nuclear development, which the President has called “unacceptable,” must be the first priority. Time, however, is not on President Obama's side. A February, 2009, report by the IAEA revealed that Iran has accumulated enough low-enriched uranium to produce the weapons-grade uranium required for a nuclear weapon. The evidence has led a number of leading experts, including former nuclear inspector David Albright, to conclude that Iran is nearing a nuclear breakthrough.

What can be done to stop Iran's march to a nuclear bomb?

To date, words have meant little. The United Nations Security Council (UNSC) has passed four tepid resolutions that have done little to affect Iran's position. Continuing the multi-lateral process through the UNSC is unlikely to do much. Russia and China hold veto power and continue to show an unwillingness to support the punitive sanctions required to get Tehran's attention.

President Obama has called for what he describes as “tough direct diplomacy” in the hopes of curbing Iran's nuclear development. However, if negotiations are to succeed, Iranian Supreme Leader Ayatollah Ali Khamenei and his coterie must truly understand the cost of their nuclear weapons pursuit.

To do so, the United States and her allies, including Canada, must be willing to peacefully exploit Iran's Achilles heel: its heavy dependence on gasoline imports.

Despite its prominence as a major oil exporter, Iran has significant energy vulnerabilities. Due to limited refining capabilities, it depends on gasoline imports for 40% of its domestic consumption. Iran is, in fact, the second-largest importer of gasoline in the world, behind only the United States.

Iran's gasoline imports are vulnerable: Tehran relies primarily on five companies for its gasoline supplies: Vitol (Switzerland/Netherlands), Trafigura(Switzerland/Netherlands), Reliance Industries (India), Glencore (Switzerland) and Total (France). Washington and Ottawa should give these companies a choice between providing gasoline to Iran's relatively small domestic market and gaining access to North America.

British Petroleum provides an example of what even a small amount of pressure can do. After Congress intensified its scrutiny of gasoline sales to Iran, BP stopped its own shipments. It is a safe guess that the company's extensive North American business interests motivated that decision.

Iran's gasoline suppliers have growing business interests in the United States and Canada: Reliance, for instance, receives taxpayer support from the U. S. Export-Import Bank, has opened a trading desk in Houston and is looking to acquire fuel storage facilities along the East and Gulf coasts. Total operates in 29 states in the U. S. and, with its American business interests likely in mind, decided last year that the political risks were too great to justify continued investment in — though not trade with–Iran's energy sector.

In January, 2009, Vitol won a US$50-million contract from the Bush administration's Department of Energy to provide crude oil for the

U. S. Strategic Petroleum Reserve. Recently, seven members of Congress wrote a letter to Energy Secretary Steven Chu questioning the wisdom of awarding this contract to the No. 1 supplier of gasoline to Iran and a company that pleaded guilty in 2007 to charges of grand larceny in connection with the U. N. Oil-for-Food scandal. The U. S. Senate had this Vitol contract in mind when it recently passed a unanimous amendment to a budget resolution banning federal funds from going to companies doing business in Iran's energy sector.

In Canada, Vitol, Trafigura and Total all have established offices in Calgary to focus on Canada's energy riches. Through a Swiss subsidiary, Rosco S. A., Vitol is involved in a takeover of Arawak Energy, a TSE-listed Canadian oil and gas company. In 2007, Glencore bought out the sales and marketing operations of Xstrata Nickel, the Toronto-based subsidiary of Xstrata, a leading metals company. Total E&P Canada, a wholly-owned subsidiary of Total, has been positioning itself as a leading producer in Alberta's oil sands with $10-to $15-billion in investment commitments over the next decade.

These are but a few examples of the North American business interests of Iran's gasoline suppliers. The Canadian government and allied groups could easily identify others in Canada's lucrative energy business. In contrast, Iran's total gasoline trade provides no more than US$10-billion in annual revenue, with industry profit margins generally averaging 1%-2%. Washington and Ottawa should force Iran's gasoline suppliers to choose between the US$100-to US$200-million in annual net profits available from Iran and the much more significant business opportunities available on this continent.

The idea of exploiting Iran's reliance on gasoline imports enjoys extensive bipartisan support in Washington and was endorsed twice by then-senator Obama during the presidential campaign. For example, in the presidential debate on Oct. 7, 2008, Obama stated: “Iran right now imports gasoline … if we can prevent them from importing the gasoline that they need … that starts changing their cost-benefit analysis. That starts putting the squeeze on them.”

In implementing such a strategy, President Obama likely would find a willing partner in Ottawa: Because a gasoline-centred approach offers a peaceful way to stop Iran's dangerous nuclear proliferation in an already volatile Middle East, it should appeal to all of Canada's major political parties.

Would Iran's government feel the pinch? Consider: In the summer of 2007, following the Iranian government's announcement that it would institute a gasoline rationing plan, violent riots ensued and drivers torched gas stations. The public protest was so great that members of the Iranian parliament pressed the government to scrap the plan.

Iranian President Ahmadinejad's government is already under immense pressure — from the public, the opposition and even the ruling establishment. Last November, a group of 60 Iranian economists called for the regime to drastically change course, saying that Ahmadinejad's “tension-creating” foreign policy had “scared off foreign investment and inflicted heavy damage on the economy.” If Iran's ability to supply its domestic gasoline needs were once again restricted, and a similar public backlash occurred, the clerical regime might look for a diplomatic way to walk back from its near-term pursuit of a nuclear bomb.

President Obama and Prime Minister Stephen Harper should put Iran's gasoline suppliers on notice that it is no longer business as usual. The stakes could not be higher: A nuclear Iran would change the balance of power in the energy-rich Middle East, pose an existential threat to Israel and likely precipitate a nuclear arms race in an already volatile region.

President Obama's vision of a nuclear-free world hinges on what happens next with respect to Iran. The last, peaceful chance to stop the Iranian bomb may depend on whether or not the United States, Canada and their allies are willing to aim political arrows at Iran's Achilles heel.