Iran Isolation Attempts Backfire

Iran's provocative missile tests 10 days ago again fueled the debate on the likelihood of aerial strikes against Iran. Since last week's thaw, however, an attack on Iran by the end of President Bush's tenure no longer appears in the offing. Moreover, the narrow, exclusively military focus of the debate misses the broader picture. The overall U.S. strategy of containing Iran has failed in principle. And the attempt to impose a sanctions regime on Iran has led to an erosion of U.S. strategic influence in Asia and the Middle East. Over the long term, Washington's shortsighted containment policy will only hurt Western business in the region. It will also play into the hands of China, drive crucial allies away, and render Iran untouchable.

At the eleventh hour, even the Bush administration seems to have realized, albeit in a limited way, the inherent failure of the containment approach. In an important about-face, the White House not only agreed to direct talks between U.S. and Iranian officials in Geneva this weekend but also held out the prospect of soon opening an American interest section in Tehran. This sea change suggests that the realists around Secretary of State Condoleezza Rice and Secretary of Defense Robert Gates have finally gained the upper hand over the faction around Vice President Dick Cheney in the intra-administration feud. The reversal also acknowledges that the dual approach of sanctions and military threats has produced nothing but America's own isolation. The far-reaching repercussions of these counterproductive sanctions against Iran and America's increasing isolation in Asia are best illustrated by this month's breakthrough on the Iran-Pakistan-India pipeline.

It's the Gas, Stupid

The Iran-Pakistan-India pipeline (IPI) is a $7.5 billion project designed to supply Indian mega-cities with natural gas from Iran's Persian Gulf fields via a 1,700-mile-long pipeline across Pakistan. The project has been repudiated and boycotted by one project partner or the other uncounted times since its conceptualization. But on July 3, Indian Oil Minister Murli Deora affirmed on the sidelines of the World Petroleum Congress in Madrid that India expects to finally sign the deal next month. This long-time-in-coming breakthrough constitutes a crucial step toward energy security for India.

For the United States, on the other hand, it deals a resounding blow to the fragile international sanctions front the Bush administration has crafted to contain Iran. What is more, with China keen on joining the project, a new geo-strategic axis – Tehran-Islamabad-New Delhi-Beijing – is about to emerge. This axis will radically reshuffle the power structure in Asia and, with it, the global balance of power.

Despite the Cheney faction's saber-rattling, the Bush administration has banked on economic sanctions strangling investment and beating a technology-dependent Tehran into submission. This strategy of tightening the economic corset choking Iran and thus forcing it to renounce its nuclear ambitions, however, has isolated the United States and its allies more than Iran. For the time being, Washington has succeeded in cajoling French Total SA, Anglo-Dutch Shell, and Spanish Repsol to withdraw their bids to exploit the Iranian South Pars field, the world's largest gas field, and the EU approved freezing the assets of a major state-owned Iranian retail bank, Bank Melli, last month.

But Iran's countermeasures have been in the works for quite a while. After all, the country has long suffered from the effects of sanctions and the reluctance of Western companies to invest in its energy sector. So it has increasingly looked eastward for new financiers and partners. The most striking example is Iran's March 24 bid for membership in the Shanghai Cooperation Organization (SCO), the Central Asian security group dominated by Russia and China.

This new "looking east" – negahe be shargh – policy concept is the brainchild of Bangalore-educated Iranian Foreign Minister Manouchehr Mottaki. While an Iranian SCO membership is still in the future, Asian dominance over the Iranian market is a current reality. China already ranks as the number-one foreign investor in Iran. Malaysian Petronas and LG Korea feature prominently in the exploitation of South Pars. The new IPI would be a final nail in the coffin of the sanctions regime.

The Empire Strikes Back

The United States has fought hard against the new pipeline linking Iran, India, and Pakistan. As recently as July 15, Senators Christopher Dodd (D-Conn.) and Richard Shelby (R-Ala.) threatened to strengthen the Iran and Libya Sanctions Act of 1996 that allows for the litigation of foreign firms investing in sanctionable business in Iran – a clear warning signal to India. Meanwhile, since the three countries could not bear the projected costs of $7.5 billion on their own, Washington has also used its considerable influence at the World Bank in the person of former president Paul Wolfowitz. He bluntly informed Pakistan that the bank would not allow any international institution to finance the project.

In its attempts to destabilize Iran and disrupt the possible route of the pipeline, the United States is allegedly supporting Jundallah. This militant insurgency in the Iranian Sistan and Balochistan province has suspected links to the Taliban and the Baloch Liberation Army (BLA), which has been fighting a guerilla war against the Pakistani army since 2000. This clandestine Baloch connection – recently exposed by Seymour Hersh in The New Yorker – undermines America's fragile, always-on-the-brink-of-a-coup ally Pakistan. Washington is also pushing for the alternative of a Turkmenistan-Afghanistan-Pakistan-India pipeline (TAPI), the construction bids for which, as a side benefit, would go to U.S. companies. This alternative scheme is strikingly similar to the pipeline deal Unocal struck with the Taliban in 1996.

U.S. obstruction is not the only problem facing the IPI project. Iran is asking for a lot of money; India and Pakistan have notorious difficulty cooperating. But this cluster of American threats and coercion proved until recently to be pivotal in preventing the project from getting off the ground. Former Undersecretary of State Nicholas Burns cited preventing IPI as one of his greatest accomplishments at a conference at Harvard University in March.

Push Factors

India, however, desperately needs energy for its growing economy. And it will risk its relationship with the United States to get this energy. Moreover, its heavily subsidized low gas prices are no longer sustainable, especially now before an election year. After all, with oil around $140 per barrel and a global recession looming on the horizon, the United States no longer has the ability to pressure countries to sever energy ties with Iran, as it did when a fire-breathing John Bolton forced Japan to withdraw its bid to exploit the Iranian Azadegan oil field. It is now every country for itself in the new energy environment.

Despite U.S. opposition, then, the IPI pipeline is back on line. The last commercial difficulties between Pakistan and India concerning transit fees have been cleared away, and only minor technical details remain for a trilateral meeting in Tehran scheduled for the coming weeks. If an agreement is reached this summer, construction could commence in 2009 and be completed by 2012. Pakistan is eager to expand its new role as the energy corridor of the future. It expects an annual $600 million in transportation fees from IPI and is vigorously politicking for China to join the project in order to increase those revenues. Until Indian consent was secured, Pakistan used the Chinese wild card as a bargaining tool to force a wavering India's hand. But now it seems that Islamabad and Tehran can have it both ways. If World Bank financing is off the table, China can step in to foot the bill.

Finalization of IPI in the coming weeks would be more than a slap in the face for President Bush. After all, in 2006 he personally fought for a nuclear cooperation pact with India designed to meet India's energy needs while tying it closer to the United States as a counterweight against a rising China. Now however, not only has the Indian government so far failed to get the pact ratified in the Indian parliament, but India is about to collaborate with China in undermining America's sanctions on Iran. Pakistan, beefed up with more than $10 billion in military aid by the Bush administration, is also giving the cold shoulder to Washington. And Iran, soon to be the number-one energy supplier for East Asia, becomes more untouchable by the day.

The Bush administration's lofty design to keep Iran in the box and use the Indian tiger to tame the Chinese dragon runs the risk of collapsing in the last months of his presidency. In fact, the American sanctions regime is driving Iran into China's arms and facilitating a Sino-Indian rapprochement. Even worse, America is facing the rise of a new strategic axis in Asia that stretches from Tehran to New Delhi to Beijing, with Islamabad as a central hub, and is financed by petrodollars. Then again, the Bush policy, by giving a lift to this new strategic energy alliance, may ultimately strengthen support in Washington for a military strike against Iran, to accomplish what containment failed to do.

Reprinted courtesy of Foreign Policy in Focus.