If, like me, you're a fan of Austin-based Stratfor, the highly regarded global intelligence firm, you'll likely have an interest in a report put out recently by the firm's founder and CEO George Friedman called "Thinking About the Unthinkable: A U.S.-Iranian Deal."
In the report, Mr. Friedman discusses U.S. options for attempting to deal with Iran's seemingly inevitable march toward nuclear weaponry. As he sees it, our country has a couple of courses at its disposal: a diplomatic approach involving "a broad coalition prepared to impose ... crippling sanctions on Iran," or a military option, where "to justify the risks of war, the outcome must be decisive."
Weighing the risks
But the downside to each of the suggested approaches seems to me to be stark. Sanctions are fine -- and maybe even effective when they involve unanimity among those imposing the punishment. But currently, Russia is unlikely to commit to sufficiently strong measures to get Iran's attention, and China, thanks to its existing energy relationship with the Iranian regime, could be an even more reluctant participant.
As to the application of military force by either ourselves or Israel, this appears to be even more fraught with danger. Unless we're able to render a crushing blow to the opponent with our first strike, it seems to me almost certain that Iran would retaliate by attempting to shut down the Strait of Hormuz by various means. And even the most casual observer could see that with this vital shipping lane blocked, crude prices would then skyrocket to the stratosphere. So while armed conflict might be beneficial to weapons suppliers and defense contractors like Raytheon (NYSE: RTN) and General Dynamics (NYSE: GD), it clearly appears to portend major negatives for global commerce.
Now, having looked at our two major options vis-a-vis Iran, let's examine the "why" of the title of the Stratfor piece. It stems from Dr. Friedman's positing the potential of a cozier relationship between our country and Iran -- much like President Nixon developed with China when the two countries were decidedly at odds. As he points out, this wasn't dissimilar from Roosevelt's deal with Stalin's Russia in their common fight with Hitler. Unfortunately, I see no current evidence that the Iranian regime has the slightest desire for an entente with the U.S. And in the final analysis, we're probably not all that keen on a hand-holding relationship with the ayatollah and his pals.
Maintaining a balance
Further, in addition to dealing with Iran's potential nuclear threat to its Persian Gulf neighbors -- along with the desirability of U.S. or even Israeli actions against the regime -- the report is concerned with the a balance of power in the area between the Iran-Iraq duo. As the author notes, Iraq, not nuclear weapons, is the fundamental issue in play. "Iran wants to see a U.S. withdrawal from Iraq so Iran can assume its place as the dominant military power in the Persian Gulf." This, of course, is precisely why without Iran on board, "the United States cannot withdraw from Iraq."
Helping Big Oil work in peace
There is another major factor at work here, as well. But this one isn't touched upon by Dr. Friedman: A number of major oil companies, starting with BP (NYSE: BP) and China National Petroleum Corp., participated in the two bidding contests that Iraq held last year seeking help in hastening the development of its 115 billion barrels of proven crude reserves. And there are those who believe that the number could ultimately move much higher. Regardless, and without counting Canada's oil sands, Iraq now possesses the world's third-largest trove of reserves.
Those companies were followed by pacts with the likes of ExxonMobil (NYSE: XOM), Shell (NYSE: RDS-A), Eni (NYSE: E), and Occidental (NYSE: OXY), among others. Only BP and CNPC together bid successfully in the first round, while the other contracts resulted either from the second session or from agreements reached outside the bidding process. Nevertheless, it appears that the companies will need U.S. military-style protection -- at least in the early years.
In the meantime, with crude prices inching slowly higher, I urge Fools to keep their eyes peeled on the companies above as they initiate operations in Iraq. I am especially interested in my two favorites among the Big Oil contingent: BP and Exxon.
