Oil-rich regimes rebel

Iran, Russia, others chart courses independent of U.S.

November 12, 2006|By Kim Murphy | Kim Murphy,Los Angeles Times

LONDON -- Iran maintains a costly nuclear program while spending billions to subsidize everything from apartments to gasoline. Russia defies international demands to give up a monopoly on oil pipelines to Europe. Venezuela sends aid to countries around the globe in an effort to expand its influence.

What all three have in common are treasuries swollen by the high price of oil.

The increase in oil prices is the common denominator in some of Washington's most implacable foreign-policy challenges. From the U.S. government's perspective, oil money empowers regimes to defy American policy on everything from nuclear nonproliferation to human rights.

Oil prices hit $78 a barrel in July. Although they have slid to about $60 since then, they remain more than twice as high as they were five years ago. With American demand for oil high and China and India rapidly increasing consumption, most analysts predict that petroleum will remain expensive for the foreseeable future.

For producing nations, the result has been a flood of revenue that "gives them leeway to pursue their own strategic and political objectives to a degree that they had not before," said James R. Schlesinger, a former U.S. secretary of Energy as well as Defense.

Schlesinger and many other energy-policy experts fault U.S. officials for failing to do enough to counter rising oil prices. Schlesinger co-chaired a task force of the Council on Foreign Relations that said last month that high U.S. oil consumption was "undercutting U.S. foreign policy and national security" and criticized the Bush administration for failing to take effective steps to reduce American consumption of gasoline and other oil products.

Richard Allen, a national security adviser to President Ronald Reagan, said in an interview that "the nexus between political power and oil money has long ago been demonstrated."

"When money from natural resources is married to political power that has malign intent, that inevitably has an effect on our relationships and our interests," he said.

Iran provides one prominent example. Tehran's annual oil revenue has shot up to about $55 billion, sharply higher than forecast. Over the past eight years, the nation, the Organization of the Petroleum Exporting Countries' second-biggest producer, has earned $300 billion from oil exports.

Last year, the Islamic republic increased defense spending to $6.2 billion while continuing to provide what American officials say is at least $100 million a year to Hezbollah, the radical Shiite Muslim group in Lebanon.

U.S. officials say Iran is also funneling aid to Shiite militias in Iraq and providing millions of dollars to the Hamas-led government in the Palestinian territories. The U.S. government has sought to isolate Hamas, which it regards as a terrorist organization bent on Israel's destruction.

More fundamentally, oil money has shored up domestic support for the country's nuclear program, significantly reducing the chance that potential economic sanctions would cause Iranian voters to turn against the government.

Another prominent example of an oil-rich country regarded as problematic by the U.S. government is Russia, which earns about $100 billion a year from petroleum exports in addition to substantial revenue from supplying about one-quarter of Europe's natural gas.

Moscow has used that money to pay off $22 billion in foreign debt early and buy back much of its oil industry -- thereby encouraging foreign investors to quit the country. Oil money also has helped Russia rebuild its military strength. Moscow's oil stabilization fund, the rainy-day catch basin for excess oil revenue, has reached $55 billion. Gold reserves are expected to exceed $300 billion by 2009.

"The long period of high oil prices is a serious factor that has helped Russia to challenge the United States over almost every foreign-policy dispute," said Dmitry Oreshkin, senior analyst with the Institute of Geography of the Russian Academy of Sciences in Moscow. "Russia would have behaved much more cautiously in its foreign policy if it were still in need of Western loans."

Venezuela collects about $40 billion a year in oil earnings and has used the money to expand the international influence of Chavez, including an unsuccessful effort to win a seat on the U.N. Security Council.

Chavez's assertiveness has a parallel in a previous era of high oil prices, said Francisco Monaldi, academic coordinator at the International Center for Energy and Environmental Studies in Caracas, the Venezuelan capital.

During the late 1970s, when prices were high, then-Venezuelan President Carlos Andres Perez nationalized the oil industry, denounced the International Monetary Fund and said OPEC should use its power over oil prices to change the international status quo.

A decade later, when Perez held office again during a period of low prices, he accepted a $4.5 billion loan from the IMF and took "a more moderate view of the role he would play on the international stage," Monaldi said.

"I think this is sort of an amazingly simple experiment" in how oil prices can change a country's global posture, he said.

Kim Murphy writes for the Los Angeles Times.

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