Saturday, November 1, 2014
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The Price of War with Iran

WASHINGTON, DC – One of the greatest challenges that US President Barack Obama will face in his second term is Iran’s pursuit of advanced nuclear technologies. While a nuclear Iran would damage America’s strategic position in the Middle East, action aimed at forestalling Iran’s nuclear progress also carries serious strategic and economic consequences.

Armed with nuclear weapons, Iran would be better able to project influence, intimidate its neighbors, and protect itself. As a result, the United States’ allies in the region would need new security guarantees. But an increased American presence could provoke radical groups, while requiring defense resources that are needed to support US interests in East and Southeast Asia.

Some of Obama’s conservative critics believe that he will allow Iran to develop an advanced nuclear program, provided that it stops short of actually building a bomb. But no American president would want their legacy to include allowing so unfriendly a regime to acquire such a dangerous weapon – even if doing so meant avoiding greater strategic costs.

Indeed, Obama has repeatedly avowed that he will stop Iran from acquiring nuclear-weapons capability, rather than allow the country to develop its nuclear program and then rely on deterrence, as has been done with other nuclear powers. But such tough rhetoric might create a dilemma for Obama.

If Iran continues on its path toward nuclear arms, war may well become inevitable, whether instigated by Israel or the US, or provoked by Iran’s erratic foreign policy. Although the costs of a containment strategy would be significant, the costs of fighting a war would be higher.

Iran has threatened to seal the Strait of Hormuz – through which 20% of the world’s internationally traded oil passes – if it is attacked. While it would be difficult for Iran to seal the strait for long, if it managed to do so at all, it could easily make passage unsafe with attacks by small boats, sea mines, and missiles launched from coastal mountains.

Furthermore, Iran would likely strike the pipelines in the Arabian Peninsula that would otherwise allow oil to bypass the strait. And several strategically crucial oil-processing facilities are within range of Iranian missiles and special forces, including the Saudi oil-stabilization facility at Abqaiq, which processes seven million barrels daily.

Such a response would immediately cause oil prices to spike – possibly to $200 per barrel in the short run. A protracted conflict could mean sustained prices of roughly $150 per barrel.

Given that Americans consume roughly 18.5 million barrels of oil daily, a mere $8 increase in the price per barrel would sap $1 billion per week from the US economy, jeopardizing its already-fragile recovery. America has already financed two wars on credit, contributing to a significant fiscal deficit. Another war would eliminate what little hope there is of achieving debt stability without drastic – and harmful – spending cuts (or tax increases).

Surging oil prices would also threaten Europe and other major oil-importing countries, including China, India, Japan, and South Korea, thereby lowering or reversing their economic growth. Iran’s own economy, which depends heavily on oil exports, would also suffer.

The conflict would likely drag on, given that the definition of victory in this scenario is ambiguous. Would America win by destroying Iran’s nuclear facilities, even if reconstruction began immediately? What if Iran incited unrest in its neighbors, jeopardizing US-allied regimes in the region? Is a settlement with Iran’s leaders feasible, or is regime change crucial to an American victory? (And, in the latter case, would the US follow its pattern of ousting a Middle Eastern government without a succession plan?)

Regardless of the goal, the end result would be more troops and ships in the region, more resources appropriated to fight new or revitalized terrorist organizations, and more arms for allied countries, many of which are themselves unstable. America’s stake in the Middle East would grow, undermining its attempts to free up assets for its professed “pivot” toward Asia, where it hopes to balance China’s growing influence.

Living with a nuclear Iran would require expensive countermeasures and create significant risks. But going to war to impede Iran’s nuclear ambitions, and containing the subsequent chaos – including oil-price spikes, increased regional volatility, and reduced American strategic flexibility – would be far more costly. If Obama stands behind his first-term declarations, the world will pay a very high price.

Read more from our "Iran’s New Man" Focal Point.

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  1. CommentedHenrik Ørsted

    Iran is certainly a country, which sticks out in a region of chaos and the loss of rule of law as the enlightened civilised world knows it. It is a country, which preserves a balance in the Middle East. It is also a big pretender on what Supreme Leader Ayatollah Ali Khamenei claims is "Islamic Awakening". Khamenei is said to be a scholar of Sayyid Qutb, the Egyptian Muslim brotherhood. This most interesting issue, however, as to why Sayyid Qutb turned to the Muslim Brotherhood was apparently his rejection of Communism and his stay in the USA. Thus, the Muslim Brotherhood does not advocate as obvious its dislike for the USA as Iran does. The leading clergy in Iran, have a totally different background from the Egyptian brotherhood, and whereas Egypt has a much smaller and obviously more predictable Israel as its neighbour, Iran counts Turkey and Pakistan as its neighbours. Iran was involved in a nearly 10 year long war with Saddam Hussein's Iraq. Ironically, the leader, who granted asylum to most of the grands, who are currently in power in Iran. But living in asylum in Iraq is a far fetch from living and getting educated in the USA, like Qutb and Professor Morsi. And as to the nuclear ambitions of Iran, Simon Peres clearly said "I accept that Iran has other reasons for developing nuclear bombs, apart from its desire to destroy Israel, but we cannot ignore the risk". There are diplomatic channels between Israel and Iran and both nations can accomodate each others existence for the common good. What I consider as being much more dangerous is, however, the massive armament of the Arabic gulf states, which is reminiscent to the armament of Saddam Hussein's Iraq, once the Islamic Republic of Iran was born. My guess is that Iran is a jealous nation. Just across the Gulf, the regimes are as undemocratic as itself and treat the human rights with the same disrespect as itself. These countries, however, get all the weapons they order, get all the high tech gadgets, they want and Iran is being demonised, not because of Nuclear Arms Proliferation, but of it being different from the rest of the Middle East. Well, I reckon with the stick-and-carrot approach, Iran can be a proud nation, without losing its face. However, care has to be taken not to weaken Iran and therefore disturbing the balance in not only the Middle East, but also in Central Asia and the Indian subcontinent. The world is round after all.

  2. Commentedjack lasersohn

    Geoffrey,
    This excellent column reminds me of your terrific courses at the Fletcher School many decades ago. It is amazing how the fiscal cliff, which will of course be resolved without catastrophe, has pushed this vastly more important issue completely aside. Hopefully, your timely article will correct this.
    Two points.
    While I agree that rational U.S. strategic considerations might argue for containment over war, Israel may not see it the same way, and Israel will probably control the US decision. It is very hard to imagine that the US will not support Israel if they decide to attack, given domestic political realities.
    Second, while the short term negative consequences of an attack (which you discuss) certainly weigh against preemption, in the longer term, the danger of proliferation to an Islamist terrorist organization raises issues that we never had to address before in deterrence theory. We already face this danger with Pakistan, and the increased risk from an even more radical regime in Iran must be factored into the equation. Frankly, I am not sure where I come out on this one. The idea of ten unstable and undemocratic regimes having nuclear weapons is terrifying. We knew this day would come thirty years ago at Fletcher, but it is even more frightening now that it is really happening.

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