Money talks, and it says that U.S. efforts to isolate Iran from our non-Western allies went nowhere. The messages from Bahrain, Oman, United Arab Emirates, India, Pakistan and others were direct and blunt. Neither U.S. sanctions nor the threat of military action will deter them from investing billions in their Persian neighbor.
Our friends don't buy into the axis of evil. They see a new, powerful axis of energy between Russia and Iran, whose combined natural gas reserves exceed 40% of the world's total. These two countries agreed to coordinate prices and production as part of a new gas OPEC. So India and Pakistan, ignoring State Department protests about an enemy in the "Global War on Terror," decided their energy security was better served by a long-term natural gas deal with Iran.
The Russia/Iran partnership goes beyond production quotas. Iran gains access to Russia's petrodollars and oil development expertise -- both largely unencumbered by U.S. sanctions. Russia gains, via Iran, a land-based venue for piping Russian gas to the Asia market on the soon-to-be-built Iran-Pakistan-India pipeline. (The pipeline, also known as the Peace Pipeline, compels Pakistan and India to negotiate over a project that traverses disputed territory in Kashmir, thereby diffusing a potential nuclear flashpoint.) Financing for the $7 billion pipeline had been threatened by Western sanctions until Gazprom, Russia's state-controlled energy giant, offered to lead the project.
Iran's Persian Gulf neighbors spoke forcefully two months ago, with commercial announcements timed to coincide with Dick Cheney's Middle East tour. Bahrain, home to the U.S. Navy's Fifth Fleet, said it wants to build a pipeline to import gas directly from Iran. Oman, which allows the U.S. to use four air bases, wants to close quickly on a deal to import 70 million cubic meters per day of Iranian natural gas. So as an incentive, Oman offered to build an offshore pipeline and to invest in Iran's oil and gas development. Some days later, Saudi Arabia and Iran announced their intent to set up a joint commerce committee to study opportunities for economic cooperation. And a few days after that, the Saudi Minister of Education met with Iran's Ambassador to Riyadh and announced that expansion of cooperation between Iran and Saudi Arabia would guarantee regional security and stability.
Qatar, where the U.S. maintains its headquarters for all Middle East air operations, said in March that it would not allow any attack on Iran to originate from its soil. The United Arab Emirates, where more U.S. Navy ships dock than at any port outside the U.S., said the same thing. Kuwait also opposes any military action against Iran.
Less affluent Arab allies sent the same message. Hosni Mubarak of Egypt and King Abdullah of Jordan both followed up their visits with Cheney by announcing their opposition to any military action against Iran. Iraq's "government" and most Iraqis consider Iran to be a close and supportive ally. (The Iraq/Iran math is daunting. They are two of only four countries where Shia comprise the majority population. About 80% of Iraq's population outside the northern Kurdish region is Shia, and 82% of Iraq's Shia have a favorable opinion of Muqtada al-Sadr.)
So when Cheney stood aboard the USS Stennis in the Strait of Hormuz and announced, "We'll stand with others to prevent Iran from gaining nuclear weapons and dominating this region," by "others" he meant possibly Israel and who else? John McCain?
As for lobbing veiled insults to Cheney, the coup de grace came from the UAE just 48 hours after the Vice President left the country. Sheikh Mohammed bin Rashid al-Maktoum al-Nahayan, UAE prime minister and ruler of Dubai and other top Emirates officials greeted Iranian President Mahmoud Ahmadinejad with an unprecedented red carpet welcoming ceremony. National anthems of the two countries were played while Ahmadinejad and al-Nahayan reviewed a guard of honor. In a country ruled by a group of royal families, this type of symbolism is important,
During Ahmadinejad's visit, both countries discussed ways to boost bilateral trade and economic cooperation. They also agreed that both countries' foreign ministers would meet regularly to discuss regional security and resolution of a longstanding territorial dispute.
But the real excitement came from Ahmadinejad's several speaking appearances, which all received the government's official "we-do-not-endorse" disclaimer. Still, the UAE is not the sort of place that permits large raucous demonstrations that directly challenge government policy. So the rally for Ahmadinejad, attended by thousands in a Dubai soccer stadium, reflected a minimal amount of government agreement. "Every time your name is mentioned, hatred builds up," Ahmadinejad said of the U.S. "Go fix yourself. This is Iran's advice to you. Leave the region." The cheering crowd, comprised largely from Dubai's merchant class, interrupted him with chants of "Down with USA" and "Nuclear energy is our right."
Contrast all that with Cheney's low-key visit days earlier. Cheney was driven to an Abu Dhabi hotel, where he met Prince Sheik Mohammad bin Zayed Al Nahyan. Following the meeting there was no public statement given to the Western press. Not even a "We-had-a-constructive-dialogue..." announcement.
Iran is "an obvious partner for the UAE and Oman, both of which are concerned that demand for power will soon outstrip domestic gas production," wrote the Financial Times.
But the economic ties extend beyond energy, especially in Dubai, the UAE's financial capital, and one of the world's fastest-growing cities. Dubai embodies the new moderate westward-looking part of the Middle East, according to George Bush, who wanted to entrust U.S. port security to Dubai Ports World, which is owned by the city government. Tax-free, business-friendly Dubai was the place Halliburton chose to relocate its worldwide corporate headquarters from Houston.
For historic reasons, the city serves as a critical commercial link between Iran and world markets. Their relationship is analogous to that between Hong Kong and Communist China in the last century. Dubai has been a trading outpost for centuries, and Iranians started moving there about 100 years ago. Currently, about 400,000 to 500,000 Iranians live in Dubai, and they represent a primary part of the city's merchant class. About 9,000 Iranian companies are registered in Dubai. Exports from Dubai to Iran are booming, increasing from $7 billion in 2006 an estimated $10 billion this year. That number may be a bit low, since, as Bloomberg reported the other day, smuggling U.S. goods to Iran is very lucrative.
As Michael Corleone said in The Godfather, "It's just business." "Despite all its rhetoric on Islamic solidarity, Iran has rarely promoted cultural or ideological goals at the expense of its material interests," writes Brenda Shaffer of the Kennedy School of Government.
OECD countries also seem to be turning a deaf ear to strenuous objections from the U.S. They read the International Energy Agency's natural gas report, which forecasts a steady rise in European gas imports. As for suppliers to the European market, the report's message is not too different from that of Alexander Medvedev, Deputy Chairman of Gazprom. "In 25 years' time, there will be only three major suppliers of natural gas - Russia, Iran and Qatar," he said.
Major European oil companies such as Eni, Shell and Total are still pursuing new investments in Iran. The Austrian oil company OMV is going full speed ahead with its new $27 billion investment in Iranian gas fields. What does Austria's government think? "I am firmly convinced that the planned gas deal will be successful, and I refer to the clear words by Austrian Foreign Minister Ursula Plassnik, who made it clear that Austria is not the 51st state of the United States," said Austria's outgoing Ambassador to Iran.
If you didn't know better, you'd think that U.S. influence is on the decline and that Iran's power is ascendant. Even more farfetched, you might think that Iran has the upper hand in any diplomatic negotiations. American influence in the Middle East was far stronger a few years ago. What happened?
Post Script: None of this is new stuff. People who follow energy markets saw this coming a year ago. See, "How George Bush Turned Iraq Into a Satellite State of Iran."