Iran Plays Hardball

The daily Times and The Hindu are both reporting that Iran is scrapping a $21b gas deal with India. Following are some snips:

Iran has informed India that the five-million-tonne a year liquefied natural gas (LNG) export deal, with deliveries scheduled to begin in 2009 for a 25-year period, is off. This was conveyed to Indian officials in Vienna soon after the anti-Iran vote cast on Saturday by New Delhi at the International Atomic Energy Agency (IAEA) governing board meeting.

Under a deal signed in June, India planned to import five million tons of liquefied natural gas (LNG) annually for 25 years with deliveries from Iran starting in 2009. Iran’s decision to cancel the deal was conveyed to India’s permanent representative, Sheelkant Sharma, at the IAEA by Iran’s ambassador in Vienna, The Hindu reported.

It followed India’s decision to join the US, Britain, France, Germany and other nations in backing a resolution calling on the agency to consider reporting Iran to the UN Security Council for not complying with the nuclear non-proliferation treaty (NPT). The motion states that Iran is in “non-compliance” with the NPT, mainly for hiding sensitive atomic activities, and is an automatic trigger for taking the matter to the Security Council. Referral would come only after a report by IAEA chief Mohammed El Baradei, expected in November.

Sharma wrote to the Prime Minister’s Office on September 24 that his Iranian counterpart had told him the LNG deal, signed between the two sides in June, was off. The Iranian Ambassador in Vienna came up to Sharma after India’s vote and conveyed a message from Ali Larijani, Iran’s top nuclear negotiator, that Tehran was no longer willing to go ahead with the $21 billion deal, added the report.

With this, India's energy security has suffered a major blow. The agreement was considered a good deal for India; in the variable component of the price formula the Brent price of crude was capped at $31 a barrel.

Perhaps I take some heat for this but I applaud Iran's decision. It's high time countries step up to the plate and do what is best for them rather than what the US thinks is best for everybody. Iran has the same right to nuclear energy as does India, Pakistan, Europe, and the US. Yes there are worries that Iran might not use nuclear facilities for peaceful purposes. Then again, how can anyone possibly blame Iran for wanting to protect itself from unwarranted military aggression from the US? If the US did not invade Iraq and threaten Iran, would Iran feel so threatened? Are threats from Bush driving Iran towards nuclear weapons? I think so. Whether on purpose or not, US policies are hardly a stabilizing factor for either terrorism or preventing nuclear weapons proliferation.

On August 14, The Sunday Times reported Britain keeps distance from talk of strike on Iran.

Foreign secretary Jack Straw sought to distance Britain yesterday from comments by President George W Bush that he would not rule out a military strike against Iran.

Bush raised the temperature by giving an interview to Israeli television from his ranch in Crawford, Texas. Asked if he would consider force, he replied: "All options are on the table." He added: "The use of force is the last option for any president and you know we’ve used force in the recent past to secure our country."

The Foreign Office reacted swiftly. "Our position is clear and has been made very, very clear by the foreign secretary," a spokesman said. "We do not think there are any circumstances where military action would be justified against Iran. It does not form part of British foreign policy."

"Iran has all the cards," said one official close to the talks. "It’s going to be embarrassing for the Brits."

Russia has a civilian nuclear contract with Iran worth £500m while China is increasingly reliant on Iranian oil and gas. Last October Sinopec, the Chinese state oil company, signed a £39 billion deal giving it a 51% stake in Yadavaran, Iran’s largest onshore oilfield.

It does indeed appear that Iran is holding all the cards. The US is bogged down in Iraq, UK tolerance for more military action is non-existent, and US support for stupidity in Iraq is plunging as fast as President Bush is in the polls. On the other hand, one simply can not rule out more insanity from this administration.

With that backdrop, Iran stepped up to the plate and told India where to go. Somehow I have a feeling that China will be the beneficiary of this ball game. In the meantime, that was one hell of a warning that Iran issued to countries regarding its rights to use nuclear energy in a peaceful manner. It will be interesting to watch the fallout over this. I expect to see a United States increasing isolated from world politics as a result.

India just lost a $21 Billion oil and gas project by being stupid. Let's see if anyone else is dumb enough to follow suit.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/