Last time I wrote on Iraq. This time let’s move slightly east to next door Iran. As everyone now knows last Friday the United Nations Security Council voted 15 to 0 to approve Resolution 1737, which impose sanctions on Iran for its nuclear program for the first time, including a ban on acquisition of materials and technology that might be used to build an atomic bomb.

The measure demands that Iran halt uranium enrichment and heavy-water projects that the U.S. and its European allies have said may lead to the development of nuclear weapons. It freezes the financial assets of 12 named individuals and 11 groups such as the Atomic Energy Organization of Iran. The resolution also requires the UN’s nuclear watchdog agency, the International Atomic Energy Agency, to report on Iran’s compliance within 60 days. “Further appropriate measures” such as economic penalties and severance of diplomatic relations will be required if Iran doesn’t comply, it says

As a rule in my view sanctions are not particularly effective as instruments for effecting policy change. While they may be a face saving and perhaps even necessary compromise between doing nothing and going to war they usually, with admittedly rare exceptions, don’t accomplish all that much. Some, as this Israeli writes, thinks it is worse than nothing.

But what I really find interesting is an article in the Proceedings of the National Academy of Sciences which was published online Dec. 26. The author, Roger Stern of Johns Hopkins University examines the presumption that is so often cited by those who wish to attack Iran; i.e., that what does a country with so much hydrocarbon resources (oil and natural gas) need with nuclear power?

Stern writes:

The U.S. case for action against Iran is based on its deceptions with respect to the Treaty on the Nonproliferation of Nuclear Weapons (NPT). However, this case is buttressed with assertions about Irani petroleum:

Finally, there is Iran’s claim that it is building massive and expensive nuclear fuel cycle facilities to meet future electricity needs, while preserving oil and gas for export.   All of this strains credulity. Iran’s gas reserves are the second largest in the world. [Yet] Iran flares enough gas annually to generate electricity equivalent to the output of four Bushehr reactors. 

Given the historic difficulties that U.S. policymakers have had with petroleum economics, it seems possible that these assertions are wrong. Iran is guilty of NPT deceptions, but it cannot be inferred from this that all Irani claims must be false. The regime’s dependence on export revenue suggests that it could need nuclear power as badly as it claims. Recent analyses by former National Iranian Oil Company (NIOC) officials project that oil exports could go to zero within12–19 years. It therefore seems possible that Iran’s claim to need nuclear power might be genuine, an indicator of distress from anticipated export revenue shortfalls. If so, the Irani regime may be more vulnerable than is presently understood. Here we survey Iran’s petroleum economy for evidence of oil export decline that might suggest such vulnerability. Stern’s conclusion is:Stern’s conclusion is:Stern’s conclusion is:Stern’s conclusion is: Stern’s conclusion is: The oil export decline we project implies that Iran’s claim to need nuclear power to preserve exports is genuine. U.S.insistence that Iran’s nuclear technology program has no economic purpose has obscured the regime’s petroleum crisis, of which the nuclear power need is one symptom.

Stern’s conclusion is: In short Iran is suffering a staggering decline in revenue from its oil exports, and if the trend continues income could virtually disappear by 2015. Stern’s article only confirms what any reasonably thoughtful person (okay, that excludes Rush Limbaugh and Bill O’Reilly) should be able to figure out.

For starters, Iran’s energy situation today is quite different from the late 1970s. Consider that just a year or so prior to the 1979 Revolution, Iran was producing 6 million barrels a day (mbl/d) of oil and its domestic consumption was less than 10 per cent of that output. Its annual natural gas production (almost all in the form of a high quality gas) was roughly 12 billion cubic meters of which some 9.5 billion cubic meters was exported to the Soviet Union and only 20 per cent was consumed domestically. Iran’s population was then 35 million.

Today, Iran has a population of over 65 million. The country produces some 4 mmb/d of oil (down a third from its 1974 level) of which almost half is now consumed domestically. Years of political isolation, recurring war and US sanctions have deprived the oil sector of needed investment. Iran’s share of total world oil trade peaked at 17.2 per cent in 1972, then declined to 2.6 per cent in 1980, and is now around 5 per cent.

Iran’s natural gas production has skyrocketed to 79 bn m³ /year with a large proportion being consumed domestically. This is likely to change in the near future however, since Iran has signed gas contracts with China and India, which will mean a larger proportion of what it produces going for export. Currently, however, at 5 bn m³ /year, its imports (from the Caspian) exceed its exports of 3.5 bn m³ /year.