S. Rob Sobhani, PhD, is a Middle East Energy Analyst and a lecturer at Georgetown University (Washington, D.C., USA)

During the fifteen years since the Iran hostage crisis, US policy toward Iran has ranged from one of appeasement to a real politik strategy of balance of power by playing Iran against its arch-rival Iraq. Currently, the Administration's policy, as outlined in its Dual Containment Policy, is aimed at containing Iran's strength and revolutionary reach within its borders.

While the major elements of America's Dual Containment Policy, such as blocking the sale of weapons of mass destruction to Iran, are sound, some modifications should be made in order to reflect America's national interests as they are evolving north of Iran. The recent signing of an international oil development project by a western consortium has bbrought about partnerships between American oil companies and the oil-rich Caspian Sea countries of Azerbaijan and Kazakhstan which are in conflict with Moscow's interest in keeping its monopoly over the energy exports from this region.

This conflict, coupled with the lack of an acceptable oil export route, is hindering the rapid development of oil-fields which is estimated to contain as much as 50 billion barrels of oil. Choosing a near-term "early oil" export route through Iran may be the solution to these problems.

Geographically, both Azerbaijan and Kazakhstan are land-locked. Hence, access to port terminals in the Black Sea, the Mediterranean Sea or the Persian Gulf are now being intensely discussed in order to determine the best export pipeline route. As it stands, there are three geographically feasible oil export routes: through Russia to the Black Sea port of Novorossysk; across Azerbaijan to Turkey and a Mediterranean port; or through Iran as part of a swap arrangement or directly to the Persian Gulf. Unfortunately, all three of these routes are fraught with political and consequent economic shortcomings.

Russian Pipeline Option

Russia has demanded that the oil be exported via a pipeline exiting at its Black Sea port of Novorossysk, whereupon the oil would be shipped by tankers through the Bosphorus Straits and onto the Mediterranean Sea. However, there are many technical problems with this proposal. The Bosphorus is a narrow waterway--only one-quarter of a mile wide at its narrowest point-- with treacherous currents. Given that the Bosphorus is already crowded by Black Sea shipping and commuter ferries continually plying back and forth between the European and Asian banks of Istanbul, turning this narrow waterway into a commercial oil export route transporting hundreds of millions of barrels of oil per year is a social and environmental disaster waiting to happen. Not surprisingly, the Turkish Government is vehemently opposed to this option.

An advantage of using Iran as an outlet for "early oil" production from the Caspian Sea would be that Washington could buy time in which a diplomatic solution might be found to the potential confrontation between Ankara and Moscow over whether Turkey or Russia becomes the final transit point for Azeri or Kazakh crude petrol. Russia's insistence that Caspian Sea crude oil be off loaded in the Black Sea is a denunciation to Turkey's dual strategy of protecting not only the Bosphorous from oil tanker accidents but also linking the economies of Azerbaijan and Central Asia to that of Turkey.

Furthermore, from a political standpoint, the Russian alternative is risky since Moscow has publicly stated that it does not recognize the legitimacy of the contracts nor the sovereignty of the signing governments to control development of their own oil.

Russia's resistance to acknowledge its former Republics' sovereignty was overtly disclosed when Moscow attempted to prevent American companies from investing in Azerbaijan's oil industry as stated in an April 28 letter from its Foreign Ministry in which it demands the right to reject Caspian Sea oil projects that its former Soviet neighbors are negotiating. The letter states "that any steps by whichever Caspian littoral state aimed at acquiring any kind of advantage with regard to the areas and resources... cannot be recognized... and any unilateral actions are devoid of a legal basis." True to their word, after the signing of the deal on September 20, the Russian Foreign Ministry Spokesman, Grigory Darasin, stated "Russia will not recognize officially the agreement which has been signed with all the consequences." And when President Clinton raised the issue with President Boris Yeltsin at their summit in Washington, it was rejected as a "trivial legal matter," that "will take years to resolve". Washington can balance Moscow's strong-arm tactics by bringing Iran into the equation.

Russian insistence that any crude oil exported from Azerbaijan --and all the littoral states of the Caspian Sea-- be moved through a pipeline system terminating at Novorossysk has the effect of holding Caspian Sea producers "by the pipeline". Indeed, previous efforts by Western oil companies to export oil through Russian pipelines under new joint venture agreements have been economically disastrous. If Iran were to be considered for the "early oil" export route, American companies could swap Caspian Sea oil by delivering crude oil to Iranian refineries and receiving an equivalent amount of crude oil at export facilities in the Persian Gulf. Such a swap arrangement would mean that American companies such as Chevron, Mobil, Amoco and Pennzoil along with their Kazakh and Azeri partners would not be subject to unpredictable economic pressure as would most likely be the case if Russia controlled the only export route for Caspian crude oil.

Turkish Pipeline Option

A pipeline route which transverses Azerbaijan and Turkey with a terminus in the Mediterranean Sea must cross Armenian-occupied Azerbaijani land or ingress Iran before entering Turkey. Because Azerbaijan and Armenia are still engaged in a bitter six-year war for the contested region of Nagorno-Karabakh, this route is not a plausible option in the near-term.

Iran Option

Ironically, that leaves an option involving Iran as the most feasible export route in the near term from both a business and political viewpoint. The President should exercise his Iran option by supporting American energy companies negotiating an "early oil" swap arrangement to export Azerbaijani and Kazakh oil from the Caspian Sea through Iran's existing pipeline infrastructure. This also buys time to decide which long-term pipeline route is the most feasible; through Russia to the Black Sea; through Turkey to the Mediterranean Sea; or through Iran to the Persian Gulf.

By encouraging Azerbaijan and Kazakhstan to export their early crude oil production through Iran with the assistance of American oil companies working in the Caspian Sea, Washington could achieve a number of strategic and foreign policy objectives.

America's energy security, today and into the next century, requires diversification of oil imports. With as much as 50 billion barrels of reserves, the Caspian Sea is second only to the Persian Gulf in terms of oil reserves and could become a stable source of oil for the West for the next 40 years. In fact, the Caspian Sea projects currently under contract are estimated to produce more than 2 million barrels of oil per day when fully developed-- equivalent to the amount of oil the United States imports from the Arab members of OPEC today. Furthermore, new oil production from the Caspian Sea will increase worldwide supply, pushing a potential supply shortage still further into the future.

It is also in Washington's best interest to prevent instability in Iran today. An "early oil" swap arrangement would provide Iran with badly needed foreign exchange in the form of transit and tanker loading fees to help stabilize its already very shaky economy. Why is it in America's best interest to help Iran avoid an economic collapse which would most likely plunge the nation into anarchy and chaos? As the only organized opposition to the Islamic regime, the Peoples Mujaheedin will in all likelihood be the beneficiaries of any change resulting from an overthrow of the current regime. While it may be true (and some Democrats in Congress seem to have bought the idea) that the once Marxist-Leninist, anti-American guerrilla group has changed its image, it cannot escape the reality of its close financial, military and intelligence ties to Saddam Hussein. An Iran governed by the Mujaheeden and allied to Iraq would have serious negative consequences for America's national security interests. Passage through the Straits of Hormuz in the Persian Gulf could once more be threatened and a scenario of destabilizing Kuwait and Saudi Arabia-- Washington's allies in the region--is not unrealistic. Finally, such an alliance could seriously threaten Israel's security. Furthermore, notwithstanding our serious differences with the Islamic regime in Tehran, the importance of Iran's geo-political significance cannot be ignored. Irrespective of who governs in Tehran, Iran is important to the US because, as it has throughout history, Iran serves first as a strategic buffer against any latent Russian desire for a warm-water port in the Persian Gulf; secondly as a counter to Iraqi hegemony in the Persian Gulf, and now, with the collapse of the Soviet Union, a natural conduit for energy exports from the land-locked states of Central Asia and Transcaucasus.

Finally, an amended Dual Containment Policy can serve as a nonpolitical venue to re-build relations between Iran and America. It would also serve as a litmus test for the Administration to gauge the extent to which Iran will welcome American companies back into its economy. Lifting the enormous psychological barrier that exists between the two nations can be accomplished by establishing constructive economic relations through this process.

The confluence of a number of political, economic and geo-political interests should compel the Clinton Administration to amend its Iran policy and allow it to adapt to an environment in which Russian imperial tendencies still linger. The former Soviet republics are trying to establish their economic and political independence apart from Moscow, and the Persian viable alternative to serve US interests and consolidate American energy security which demands a diversification of oil supplies.

Caspian Crossroads, Num.1, Winter 1995