Reverse Oil Weapon?

There was a great article in the December 26, 2006 edition of the Proceedings of the National Academy of Sciences by Roger Stern that has largely flown under the political radar in Washington. Using open-source, non-Farsi materials on the Iranian oil industry, Stern explores Iran's argument for developing nuclear power in the face of its vast oil resources. His thesis is that the declining productivity of Iran's state-controlled oil industry and the exploding costs of domestic energy subsidies will cause its oil exports to completely evaporate somewhere between 2012 and 2022. Iran, therefore, does has a significant interest in pursuing nuclear energy to stave off this inevitable economic crisis in Tehran.

The report is short, but pretty wonky. Stern's math is pretty solid and his case is fairly convincing given how badly the Ahmadinejad administration has bungled oil politics in Tehran over the past year and a half. The article's only weakness is that it assumes that the Iranian government won't make the difficult choice of cutting domestic fuel subsidies when push comes to shove on the budget. Analysts said the same thing about Indonesian President Susilo Bambang Yudhoyono's administration back in 2005, but he managed to cut his country's substantial fuel subsidies twice without too much trouble.

That being said, the most intriguing part of the article, however, is the author's musings an American 'oil attack' on Iran:

Iran's petroleum crisis is a strategic opportunity. Unless price increases, export erosion seems likely to reduce the regime's monopoly rent stream. Such a dynamic seems propitious for some policy to compound the regime's self-inflicted problems. A nonviolent, economic attack on monopoly price is such a policy.

A price attack implies measures that would erode market power and hence reduce price. Market power exerted through OPEC investment restraint is responsible for most of the difference between the $4- to $10-per-barrel competitive price and market price, which has been much higher for most of the past 33 years. This difference underwrites the Islamic Republic, the need for U.S. force projection in the Gulf, and many other security problems (4). An analogous target in a military campaign would be an adversary's industrial capacity. Market power should be understood in this way, as inseparable from the threats it underwrites but also more vulnerable.

A price attack implies forced adoption of fuel-efficient technology by importing states. The resulting fuel efficiency (f-e) improvement would have to reduce demand by enough to force cartel producers to defend price, which they would do by reducing supply. Equitable sharing of supply cuts is an inherent problem for any cartel that lacks an enforcement mechanism for market sharing agreements.

[snip]

The most efficient policies to force f-e would be fuel taxation, cap and trade mechanisms (for horsepower, emissions, or miles traveled), or fleet f-e standards. Given what appears to be a decreasing price elasticity of gasoline demand in the U.S., some combination of standards and taxation might be most successful. The burden of new taxation could be partially offset by reductions to payroll or other taxes. Although the optimal price attack policy cannot be known, present U.S. energy policy is nonoptimal in that it ignores price. Energy policy has been adopted in response to the imaginary problem of oil dependence (4), which has reduced it to a quest for tax preferences by domestic producers.

Whatever policy might be adopted to mount a price attack, light-duty vehicles (LDVs) would be the source of most demand reductions because they are the least efficient among all oil-demand technologies. Unfortunately, Americans are not savers, new car consumers least of all. Indeed, car consumers may discount f-e savings almost to zero. Yet, although f-e may be unattractive to consumers, a policy to force adoption would be akin to a mandatory savings plan like social security but with higher returns.

I think this is the first time that someone has ever explicitly tied energy conservation together with foreign policy and national security. I don't know if the federal government could change conversation policy rapidly enough to impact Tehran, while at the same time minimizing its impact on U.S. economy. One thing's for sure though, this conservation-foreign policy link is definitely a lot more rational than the old "energy independence" meme.

This kind of puts those over-the-top "driving SUVs supports terrorism" commercials made by Americans for Fuel Efficient Cars in a whole new context though.