Lesson 1

WASHINGTON, Jan 15 (Reuters) - Republican and Democratic senators said on Sunday the United States may ultimately have to undertake a military strike to deter Iran from obtaining nuclear weapons, but that should be the last resort.

"That is the last option. Everything else has to be exhausted. But to say under no circumstances would we exercise a military option, that would be crazy," Republican Sen. John McCain of Arizona said on CBS's "Face the Nation."

Democratic Sen. Evan Bayh of Illinois, a member of the Senate Intelligence Committee, said there are sensitive elements of Iran's nuclear program, which, if attacked, "would dramatically delay it's development ."

"But that should not be an option at this point. We ought to use everything else possible keep from getting to that juncture," he said on CNN's "Late Edition."

A growing nuclear fracas exploded last week when Iran, defying the United States and major European powers, resumed nuclear research after a two year moratorium.

Iran says it aims only to make power for an energy-needy economy, not build atom bombs. But it hid nuclear work from the U.N. nuclear watchdog agency for almost 20 years before exiled dissidents exposed it in 2002.

On Sunday, Iran said that only diplomacy, not threats to refer it to the U.N. Security Council, could defuse a standoff over its nuclear work and warned that any Western push for sanctions could jack up world oil prices.

The Security Council's five permanent members and Germany planned talks in London Monday on a common strategy to tackle the controversy.

McCain called the nuclear standoff "the most grave situation that we have faced since the end of the Cold War, absent the whole war on terror."

"We must go to the U.N. now for sanctions. If the Russians and the Chinese, for reasons that would be abominable, do not join us then we will have to go with the (states that are) willing," he said.

While acknowledging that President George W. Bush has "no good option," McCain said "there is only one thing worse than the United States exercising a military option, that is a nuclear armed Iran."

"If the price of oil has to go up then that's a consequence we would have to suffer," he said.

Iran is the world's fourth biggest exporter of crude oil and the second biggest in the Organization of the Petroleum Exporting Countries.

Experts and officials say it may be impossible to destroy Iran's nuclear program because much of it is underground and dispersed at numerous sites.

In addition, they have said an attack on Iran could further inflame anti-Americanism in the Middle East and prompt Tehran to interfere more in Iraq and encourage Islamist fundamentalist groups to launch new attacks on the West.

Another Senate Intelligence Committee member, Republican Trent Lott of Missouri, said that despite a massive military commitment in Iraq the United States has the capability to strike Iran but it would be "difficult" and other options must be tried first.

Bayh accused Bush of undermining the U.S. national interest and creating this "dilemma" by ignoring the problem of Iran for four years.

Iran wants diplomacy not threats in nuclear impasse

15 Jan 2006 17:54:32 GMT

Source: Reuters

(Adds Iranian foreign minister, paragraphs 14-16; edits)

Iran's "red line" step in Western eyes was removing IAEA seals to reaccess equipment that purifies uranium, a key component in nuclear power or, if enriched to a higher level, in weaponry.

"Diplomacy is the only clear answer to the current situation," Iranian Foreign Ministry spokesman Hamid Reza Asefi told a weekly news conference on Sunday.

"There is no legal basis for referring Iran to the Security Council. But if that were to happen Iran is not afraid."

Iranian Economy Minister Davoud Danesh-Jafari said any sanctions to punish Iran over its nuclear programme could hurt the sponsors.

"Any possible sanctions on Iran ... could possibly, by disturbing Iran's political and economic situation, raise oil prices beyond levels the West expects," he told state radio.

Many EU, Russian, Chinese and developing world companies also conduct lucrative energy-related trade with the Islamic republic, suggesting economic sanctions will be anything but inevitable if the Security Council takes up Iran's dossier.

Asefi called on big powers attending the London meeting -- the United States, Britain, France, Russia, China and Germany -- to refrain from "the language of intimidation and threats".

"Better results will definitely be achieved by resorting to negotiations and using respectful language..., he said.

Western officials have mooted the option of an emergency IAEA board meeting next month to send Iran to the Security Council, a step the board shelved in November to allow time for more EU and Russian dialogue with Tehran now in tatters.

In an interview with Reuters on Sunday, Iranian Foreign Minister Manouchehr Mottaki accused the EU of over-reacting to Tehran's steps last week and urged it to return to negotiations.

"We have renewed research-and-development for peaceful nuclear activities and that is separate from nuclear fuel production. So it is a little bit strange to us, this impatient (EU) approach to the issue," Mottaki said.

He said that for Iran to agree to voluntarily suspend research once again would amount to accepting "scientific apartheid", an allusion to the developing world's resentment at big powers' dominion over nuclear technology.

Iran has bristled at hints of sanctions by threatening in turn to end snap checks by IAEA safeguards inspectors and resume uranium enrichment if it is put in Security Council hands.

Britain, Germany and France accused Iran last week of consistently breaching its commitment to nuclear transparency as a signatory of the Non-Proliferation Treaty and failing to prove its atomic work was wholly peaceful.

Washington and EU powers hoped at the London talks to persuade Russia and China to stop blocking a broad consensus on the IAEA's 35-nation board of governors for referral. Moscow and Beijing also wield vetoes on the Security Council. (Additional reporting by James Mackenzie in Berlin, Paul Hughes and Pariza Hafezi in Tehran)

Referring Iran to UNSC to up oil prices to $100

LONDON, January 15 (IranMania) - The intrigue over Iran's nuclear preogramme has deepened recently and threats, led by the US, to refer Iran to the UN Security Council, have intensified, echoing development in the run-up to the Iraq war.

The recent standoff over Tehran's nuclear activities between Iran, the second-biggest producer in the 11-member OPEC, and the world's fourth-largest exporter on one hand and the West on the other hand could result in oil prices reaching unprecedented highs the coming few weeks, an editorial published on MPH magazine stated yesterday.

What the US and its European allies shouldn?t ignore is Iran's strategic importance to the United States and the West in general and its role in the global energy equation, according to Aljazeera.com.

Facing mounting international pressure, the Islamic Republic threatened yesterday to stop co-operation with United Nations nuclear inspectors if it's hauled before the Security Council for possible sanctions.

U.S. officials, allied with Europe and Canada in taking Iran to the UN body, don?t rule out using the military option to end what they see as ?Nuclear Threat?.

But one thing is certain: the Bush administration will never mention oil as a reason for going to war as in the case of IRAQ, when Saddam Hussein's alleged WMD were cited as the principal justification for the US-led invasion, Aljazeera.com noted.

"We will not tolerate the construction of a nuclear weapon [by Iran]," is the way the US President George W. Bush put it in a 2003 statement. But just as the failure to discover those banned weapons in Iraq undermined America?s use of WMD as the key justification for its illegal war, so its claim that an attack on Iran would be justified because of its alleged nuclear potential should be a subject of a widespread skepticism.

The article further stated that experts say that the nuclear standoff over Iraq's nuclear programme and a possible end of Iranian oil exports to the Western market if its nuclear dossier was sent to the UN Security Council and sanctions were imposed, has put a new floor under oil prices at above $60 a barrel, Aljazeera.com added.

Manouchehr Takin, an analyst at the London-based Centre for Global Energy Studies expects that "if Iran stopped exporting it would be a major shock for world markets," warning that oil prices would hit $100 a barrel.

"Supply and demand are very tightly balanced, and the world doesn't have the spare production capacity." Iran, which holds 10% of the world's oil reserves, produces around four million barrels a day (b/d) and exports 2.4 mln-2.6 mln b/d, mainly to Japan, China, South Korea, Taiwan and Europe.

Iran's crude oil and natural gas reserves are estimated to be worth $ 3,000-bn.

The withdrawal of Iran?s oil exports would deal a major blow to world markets, and lead to an overall inadequacy of global spare capacity, estimated at just 1-1.5 mln b/d, due to the fact that much of it consists of heavy oil, which few refineries can handle, the article added.

Iran remains the "major upside risk on oil prices. Nobody's going to start selling the market aggressively. It's only going to take one headline for prices to move higher," Barclays Capital analyst Paul Horsnell said.

Moreover, UK-listed firms could also be directly affected by sanctions, including Royal Dutch Shell and construction group Costain.

Also Shell, it has no production in Iran at present, but has started holding talks with National Iranian Oil Company to build a liquefied natural gas plant.

Recently oil experts in the US raised concerns over Iran's trading oil in Euros. Iran started trading oil with its European and Asian partners using the Euro which means that without some form of US intervention, the euro will establish a firm foothold in the international oil trade, an obvious encroachment on US dollar supremacy in the international oil market, given the US debt levels.

"Of all the enemies to public liberty war is, perhaps, the most to be dreaded because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes...known instruments for bringing the many under the domination of the few. . . No nation could preserve its freedom in the midst of continual warfare."

http://www.iranmania.com/News/ArticleView/viewprintablearticle.asp

Jan. 12 (Bloomberg) -- The dispute over Iran's nuclear program is ``the major risk'' in the oil market, said Barclays Capital, the most accurate forecaster of last year's rally.

Oil rose for a second day to near a three-month high after U.K. Prime Minister Tony Blair said Iran's decision to restart research on uranium reprocessing may lead to its referral to the United Nations Security Council and possible sanctions. Iran, OPEC's No 2 producer, says its program is for civilian use.

``Iran matters more than is currently priced in and Iran's external relations remain the key wild card,'' analysts Paul Horsnell and Kevin Norrish said yesterday in a report. ``We continue to see the situation as representing the major upside risk for oil prices this year.''

Horsnell and Norrish, who made the highest and most accurate prediction of crude oil prices last year, say New York futures may average $61 a barrel this year, 11 percent more than in 2005. Iran produces about 4 million barrels of oil a day, almost 5 percent of global output.

``There are elements within the Iranian government that see the oil market situation as an insulation that allows them to push harder,'' London-based Barclays said in its Weekly Oil Data Review. ``Much depends on whether that is a miscalculation.''

Crude oil for February delivery rose as much as 67 cents, or 1.1 percent, to $64.61 a barrel in after-hours electronic trading on the New York Mercantile Exchange. The contract traded at $64.48 at 3:26 p.m. Singapore time.

Oil prices have tripled since 2001 as global demand rose faster than supply. That's made energy markets more sensitive to supply disruptions from major producers including Iran. Traders are concerned that Iran may retaliate against UN sanctions by cutting oil shipments.

Crude oil more than doubled in 1979 after a revolution in Iran slashed the nation's oil exports. In 1981, U.S. refiners were paying an average $35.24 a barrel, according to Energy Department figures, or $75.44 in 2005 dollars.

``Iran is huge because of the instability it's creating,'' Jan Stuart, an energy economist at UBS AG, said in New York. Its ``drive to nuclear arms is hugely worrisome to an oil world in which you do not have enough oil supplies already.''

Oil rose 5 percent last week after Russia, the world's largest producer that's not a member of the Organization of Petroleum Exporting Countries, cut gas exports to Europe because of a price dispute with Ukraine.

Iran's decision earlier this week to resume research on the nuclear fuel cycle this week followed two years of voluntary suspension designed to underline the Iranian government's contention that its nuclear program is peaceful.

The U.S. State Department said yesterday that Iran's action made a referral to the Security Council more likely. Iran has ``under the cover of a peaceful nuclear program, sought to develop, systematically, a nuclear weapons program,'' State Department spokesman Sean McCormack said.

Concerns that Iran may develop nuclear capabilities intensified following comments last year by Iranian President Mahmoud Ahmadinejad in which he called for the eradication of Israel and denied the existence of the Nazi Holocaust.

Oil Hits $65 as Iran Concerns Mount

Thursday, January 12, 2006

NEW YORK — Oil briefly topped $65 a barrel Thursday for the first time in three months as tension over Iran's nuclear ambitions stoked fears of a supply disruption from the world's fourth biggest crude exporter.

U.S. crude oil futures struck $65.10 a barrel on the New York Mercantile Exchange, the highest since early October, before profit-taking pulled prices back to $63.94, unchanged on the day. London Brent crude settled up 45 cents to $62.62.

Oil prices have risen about 10 percent since late December, supported by simmering tensions in the Middle East that spurred an influx of speculative cash, and bringing them back within reach of the peak $70.85 hit in August.

"The way things are turning out, Iran seems to be oblivious to world pressure and could be headed for a showdown with the West," said Phil Flynn, analyst at Alaron Trading in Chicago. "This is potentially very bullish for crude."Iran has said it aims to develop a civilian nuclear power program, but the international community suspects it is seeking to develop an atomic bomb.

The foreign ministers of Britain, France and Germany, meeting in Berlin Thursday, said talks with Iran had reached a dead end and agreed it should be hauled before the U.N. Security Council over its nuclear program.

Oil analysts said there is concern the dispute could result in sanctions that curb the OPEC-member's oil exports.

"Clearly that's a possibility," said Frederic Lasserre of SG Commodities in Paris. "Iran has been so aggressive ... and has repeated several times very aggressive comment ... Of course the market is very sensitive."

If Iran halted exports of around 2.4 million barrels per day (bpd), the rest of the world's spare capacity would struggle to make up the shortfall.

Oil traders are also nervous about the situation in Nigeria, the world's eighth largest oil exporter, where twin attacks on Royal Dutch Shell oil facilities cut output by 10 percent.

In the first attack Wednesday, unidentified armed men kidnapped four foreign workers from an offshore oilfield, forcing the company to shut the 120,000 bpd field.

In the second, an explosion on a major crude pipeline cut exports by a further 100,000 bpd.

U.S. oil giant Exxon Mobil Corp. (XOM) Thursday denied a report that 80 of its workers were taken hostage on an oil rig in Nigeria, saying a contractual dispute was being resolved and operations on the rig were normal.

Concern about supply disruptions outweighed the impact of U.S. inventory data released Wednesday that showed stockpiles of heating oil, all-important during the Northern Hemisphere winter, had increased, after mild weather in key consuming regions reduced demand.

Gasoline inventories also rose sharply, though overall crude supplies fell by more than anticipated after refineries increased activity.

Oil Prices Climb, Remain Above $64 a Barrel Amid Expectation of Growth, Fears Over Iran

By GEORGE JAHN Associated Press Writer

The Associated Press

Jan 12, 2006 — Oil prices finished steady near $64 a barrel Thursday, with jitters over Iran's nuclear ambitions and traders' expectations of rising energy demand offset by above-normal temperatures in the U.S. and signs of growing supplies.

But natural gas futures settled below $9 per 1,000 cubic feet for the first time in nearly five months after a U.S. government report showed weak demand last week for the industrial and home-heating fuel.

After briefly climbing above $65 a barrel, light sweet crude for February delivery settled at $63.94 a barrel, unchanged on the New York Mercantile Exchange. In London, Brent crude futures rose 45 cents to settle at $62.62 a barrel on the ICE Futures exchange.

The mild weather in the U.S. Northeast and Midwest weighed on home-heating fuels, sending heating oil futures down by 1.58 cent to settle at $1.7113 per gallon and natural gas futures 29.5 cents lower to $8.943 per 1,000 cubic feet. That was the lowest settlement since Aug. 18, when the front-month contract settled at $8.928.

Natural gas is down 43 percent since Dec. 13, when it hit an all-time peak of $15.78 on concerns of a potentially cold winter and disrupted production in the Gulf of Mexico in the wake of Hurricane Katrina.

The threat of instability in the Middle East has raised concerns on oil markets this week after Iran a major oil producer said Tuesday it would allow work at its nuclear research facilities to resume despite warnings from Western countries.

"We believe that Iran matters more than is currently priced in, and that Iran's external relations remain the key wild card," Barclays Capital's Paul Horsnell wrote in a research note. "We continue to see Iran as representing a severe upside risk for prices this year."

Iran said its action was to prepare for fuel research only and that it was not resuming work to produce nuclear weapons.

The U.S. and Britain said Wednesday that Western countries will likely seek economic sanctions against Iran after it restarted nuclear activity. Iran's president said his country would not be "bullied" and would push ahead with the program.



World oil 'to touch $70 over Iran nuclear crisis'
Published: 13th Friday 2006 LONDON: A referral of Iran to the United Nations Security Council over its nuclear programme is likely to push oil prices to record high points above $70 per barrel, analysts in London said yesterday. The Iran crisis represents "a major source of upside risk for oil prices", Barclays Capital analyst Kevin Norrish said. He added: "It is not too difficult to construct a scenario in which prices will get back past $70 in relatively short order." Iran sparked international alarm and fury this week for breaking UN seals on three nuclear facilities in order to resume nuclear fuel work. Yesterday in the wake of the pressure heaped on Iran by Western powers, a barrel of crude for delivery in February climbed by 81 cents to $64.75 in New York pit trading. Crude oil futures hit historic high prices in nominal terms last August. Following the devastation wrought by Hurricane Katrina on US Gulf Coast energy installations, prices struck $70.85 per barrel in New York and $68.89 in London. That marked a 70pc jump between January and August 2005, before a pull-back in prices owing largely to mild weather across the northern hemisphere in the run-up to winter. Amid the strong rally in prices in recent days, markets have begun to draw comparisons to the Iranian revolution in 1979, when oil prices surged to the highest ever level in real terms. Adjusted for inflation, oil prices in New York had hit $87.23 per barrel on November 30, 1979, in today's money, according to analyst estimates. Global Insight analyst Simon Wardell said he did not envisage that the UN Security Council would stop Iran from exporting its oil as part of any sanctions that might be imposed on the second biggest producer within Opec. However Iran might decide itself to cut supplies in order to create a surge in prices that in turn would hurt the international community, he added. Such action "would be self-defeating (for Iran) and it could only be done for a limited period of time, but it would certainly spike prices", Wardell said. Iran currently produces approximately 4m oil barrels per day.

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