Iran to blame for inflation?

Marketplace Staff Jun 28, 2006

Iran to blame for inflation?

Marketplace Staff Jun 28, 2006


SCOTT JAGOW: There are lots of explanations for why oil prices are so high at the moment. Commentator David Frum has this one:

DAVID FRUM: At more than $70 a barrel, the price of oil reflects more than just the surge of Chinese and Indian demand, more than just supply problems in Nigeria and Venezuela.

Iran, the world’s No. 3 oil exporter in 2005, is aggressively pursuing a confrontation with the outside world.

Iran is supporting anti-American insurgents in Iraq. It has threatened to wipe Israel off the map. It is developing nuclear weapons and has already acquired missiles that can hit Europe.

But that behavior, disturbing as it is, is not what is spooking the oil markets most.

I’d guess that they are most spooked by a more fundamental question: What does Iran want nuclear weapons for?

The answer to that question takes us back 20 years.

During the Iran-Iraq war of the 1980s, Iran tried to apply pressure to Iraq’s Arab financial backers, especially Kuwait, by firing missiles at their oil tankers as they navigated the Persian Gulf.

The United States responded by allowing the Kuwaiti tankers to fly American flags, warning the Iranians that a missile launched at the tankers would be regarded as a military attack upon the United States. A tense naval confrontation followed and ended with the late Ayatollah Khomeini glumly accepting a compromise peace.

Ask yourself this: If Iran had nuclear weapons in 1986, would the United States have reflagged those Kuwaiti tankers and defied the Iranians to shoot, if they dared?

Seems unlikely.

Twenty years on, Iran is acting more the regional bully than ever. Unlike the brutish Saddam Hussein, Iran does not invade its neighbors. But it does try to frighten and coerce them, and they are very frightened right now.

Those neighbors see a regional superpower rising next door, determined to control as much of the Middle East oil wealth as possible and arming itself with nuclear weapons to deter an American protector from helping them.

It’s the oldest game in the Middle East: Who wants to be an oil monopolist? This week’s contestant is Iran.

And the failure to date of the United States and the West to contain Iranian ambitions is not just a geopolitical and strategic failure. Increasingly it is becoming an economic failure that is driving interest rates upward and may yet push the world toward a financial crisis.

David Frum is a resident fellow with the American Enterprise Institute in Washington, DC.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.