Monday, June 20, 2005

Iran's nuclear program

If I was to order 5000 pounds of ammonia based fertilizer and a dozen barrels of diesel fuel to be delivered to my address, I would expect to have either the ATF or the FBI to start keeping a very close eye on my activities. I would also expect an interview, either before or after a search warrant has been served on my house, for although both of these items are legal to own by pretty much anyone who can pay for them, the combination of such quantities in an urban environment should set alarm bells off as there are extraordinarily few plausible non-explosive reasons for an order of this size.

That is the basic concern that the United States has with Iran. Up to this point, Iran has the right under the NPT to a civilian nuclear power program with the support infrastructure to build a fueling cycle. The problem from the US point of view is that there is no really plausible and non-fission weapon producting explanation as to why Iran, an oil rich nation, wants to use nuclear power as it is more expensive than building new oil fired electrical plants.

I would like to offer an extraordinarily NAIVE but plausible scenario. I am under the opinion that the strategic incentives are very clear for Iran to go nuclear as fast as it can but the counter story is a useful intellectual exercise. Understanding the cover story can provide insight on the leverage points needed to exert positive change.

The story would go that Iran sees a world that is running out of easily available light sweet crude oil and that the overwhelming majority of Iran's reserves are at least a little bit heavier, and much more sour than West Texas Intermediate or Brent Light crude oil. Heavy and sour oil is more expensive to refine, and thus sells at a significant discount. If Iran believes that they are in a future where there is little new supply capacity, then they want to capture as much of the profits and work spent refining their lower quality crude oil into higher quality quasi-processed oil before shipping it overseas.

However, the process of changing heavy sour to sweet light is energy intensive. The plan would be, to quote Stirling Newberry of BopNews to "use nuclear power to augment and enrich heavy oil.. In essence, nuclear power will be amplified by pumping steam into... oil, generating hydrogen to enrich that heavy oil, and then sending this to the packaging stage."

Nuclear power plants are an extraordinarily good producers of waste heat that can be used to generate steam. If Iran believes that oil will remain expensive, and that natural gas as a nearer substitute and feedstock of petroleum production will continue to become more expensive in the future, the opportunity cost of nuclear power goes down rapidly, especially if these assumptions hold true AND Iran continues to be an overwhelming mono-exporter; it would not make a lot of sense to eat into the primary hard currency stream for domestic consumption.

Additionally Iran's leaders could make the argument that if they are to go into the value added production of low quality crude into high quality crude, they would not want to leave their entire economy or at least a significant segment of it vulnerable to economic blockade or spare part restrictions. That would be the argument against relying on a First World supplier of nuclear fuel --- strategic independence is a very valuable commodity especially as Iran has seen many of its neighbors and near neighbors experience painful adjustments to critical nodes of their economies and states once certain supplies had been cut off. Paens to free trade's magic can only go so far before geo-political mercantilism and strategic flexiblity overwhelm economic efficiency.

Now this entire storyline of wanting nuclear power in order to increase the quality of heavy sour crude for export is a plausible story. I do not think it is the reason why Iran wants to go nuclear --- they want the deterrant effect and they want to take advantage of the tie down of the US Army in Iraq to get it down quickly, but this would most likely be a nice little side effect of a bomb-building program.

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