Iran's Energy Blackmail

Article excerpt

Byline: Niall Ferguson

In the West's high-stakes nuclear game with Tehran, Ahmadinejad may hold the stronger hand.

The signs of economic recovery in the United States grow more numerous--and with them rises the probability of President Obama's reelection. But two crises abroad threaten to rain on the American parade: the European sovereign-debt debacle and the phony war over Iran's nuclear program. Most commentators treat these two crises as unrelated. But they are in reality two sides of the same crisis. Call it the Euranian crisis.

The connection surfaced on Feb. 15 when Iran's Oil Ministry threatened to cut off exports to six European countries in a bid to preempt the EU embargo on oil imports from Iran, which goes into effect on July 1. At first sight, this was just a new version of an old ruse: if someone threatens you with sanctions, try to get your retaliation in first. In typical fashion, it coincided with television coverage of President Mahmoud Ahmadinejad personally inserting the first Iranian-made nuclear fuel rods into a reactor in Tehran (while chanting verses from the Quran)--as well as the arrest of three Iranians suspected of plotting attacks on Israeli diplomats in Bangkok.

It's all rather reminiscent of that gangster character Jimmy Cagney used to play: the little guy who tries to intimidate bigger opponents by acting like a psychopath. But there's even more method to Iran's seeming madness.

First, note which European countries Tehran threatened with its oil-export ban: France, Greece, Italy, the Netherlands, Portugal, and Spain. Four out of the six belong, with Ireland, to the "PIIGS" club of euro-zone countries with chronic deficits. These are not exclusively fiscal deficits (gaps between government spending and tax revenue). Experts have long given more weight to the PIIGS' trade deficits, which have been larger for longer than their fiscal deficits. According to Martin Wolf of the Financial Times, the key imbalance at the heart of the euro crisis is the trade and services deficit between the PIIGS and the so-called core: Germany.

But that's not the whole story. As my friend Kevin Harrington pointed out recently, the PIIGS also run a massive deficit with the oil-producing countries of the world, and especially those of the Middle East. According to the CIA, oil imports by those countries were around 4.6 million barrels a day in 2008. For the EU as a whole the figure was 18. …