IRAN'S NUCLEAR PROJECT can probably be stopped by significantly cutting its oil income. A meaningful decline in this main source of Iran's income would force its leadership to choose between butter and guns. This is a critical choice; the ayatollahs cannot hope to maintain their hold on power if they cannot feed the tens of millions of destitute citizens now kept afloat with immense welfare outlays. As long as high oil prices and exports provide them with enough income to finance both their costly welfare program and their ambitious, expensive nuclear project, they can and will do both. If reduced means compel a choice, the survival instinct will force them to choose rice rather than enriched uranium.

So why has so little been done to reduce Iran's oil income? Military and diplomatic experts in the West have not yet considered the full extent of Iran's economic vulnerability. Like the Kremlinologists of yore, whose chief efforts were directed at avoiding a nuclear conflagration between the Soviet Union and the West, those dealing with Iran have become totally enmeshed in diplomatic moves to head off Tehran's nuclear ambitions, ignoring the less obvious but more crucial economic processes that underlie Iran's power. Very few Kremlinologist predicted the implosion of the powerful Soviet empire, an implosion that had far more to do with economics than with diplomatic efforts at containment. The same may be happening now with regards to Iran.

THE IRANIAN ECONOMY IS IN SHAMBLES. In an effort to please their lower-class supporters in the wake of the revolution, the ayatollahs slapped price controls on agricultural products. Within several years this resulted in the devastation of what was once a prosperous agricultural sector. Millions of farmers had to leave their farms and move to shanty towns near major urban centers. There they were fed by Islamic charities financed by the confiscated assets of the shah. Charity was allocated by family size. This encouraged higher birth rates and caused a population explosion, more than doubling Iran's population and putting further strain on its welfare system.

Mismanagement and corruption, which are endemic to dictatorial regimes, further increased inflation and unemployment, leaving millions of those inhabiting the politically volatile shanty towns barely able to keep their heads above water. Should a cut in oil income force the government to cut back on its welfare subsidies, it will risk a massive revolt--this time not by disgruntled students, who can be marginalized and brutally suppressed, but by the very Islamic masses that have been supporting the revolution as long as it secured their livelihood and lifted their morale with the promises of a victorious jihad.

If not for ever-higher income from oil, Iran's inefficient and corrupt economy would have collapsed long ago. But with Western complicity, the Iranians have cleverly managed to increase their income. By inflaming the Arab-Israeli conflict and supporting terrorism, they also foment tension that leads to higher oil prices. Their investment in Hezbollah, you might say, has really paid off.

EVEN A PARTIALLY SUCCESSFUL effort to reduce Iran's income from oil could have great impact, because there are already signs of breakdown in the Iranian economy. In a January 10 Jerusalem Post piece, "Ahmadinejad's Reign Threatened by Soaring Housing Prices," Meir Javedanfar, an independent analyst, is quoted to the effect that 800,000 new families are formed in Iran annually but only around 450,000 housing units are constructed. Prices of apartments in some parts of Tehran have increased by 3,000 percent since 1990. There were 2 million applicants for 30,000 housing loans offered by the government. "The main reason people voted for Ahmadinejad," Javedanfar concludes, "was because of internal problems such as corruption, inflation, housing and unemployment. . . . Unless he confronts these issues, in the next elections his position would be in danger."

Recently, 150 lawmakers, at the core of the Iranian establishment, signed a letter criticizing Ahmadinejad "for policies that led to a surge in inflation." These lawmakers linked their criticism of economic policy to a misguided nuclear policy that may provoke serious international sanctions. A group of powerful businessmen, known as the Islamic Coalition Party has also called for moderation in the country's nuclear policies to prevent further damage to the economy

A Western-induced cut in oil income can greatly accelerate such political pressures. How could a cut in Iran's oil income be achieved? The U.S. government could of course try to use its enormous clout to bring pressure on firms that trade with Iran or facilitate its financial transactions. It could also put pressure on the Iranian currency. Admittedly such steps are complicated and may not be sufficient. But why not try?

Then there is the possibility of sanctions aimed directly at Iran's oil export industry. Both proponents and opponents of sanctions tend to warn how difficult and complicated a successful oil embargo would prove, since it would be resisted by some shippers, notably by the two nations that constantly strive to undermine Western interests, Russia and China.

But an embargo need not be perfect to achieve its goals, since it is sufficient to reduce Iran's oil income markedly, not cut it off entirely. This could be accomplished by blockading the few major Iranian loading facilities--a much simpler task than blocking ships on the high sea.

IF MORE STRINGENT economic sanctions fail to deter Iran's nuclear ambitions, one can always consider military steps, but more graduated and finely honed than are usually suggested. Opponents of military pressure on Iran claim that it would be futile because no military measures could give us confidence of successfully neutralizing the entire Iranian nuclear undertaking. Much of it, they explain, is buried underground and may be so thoroughly protected as to escape damage even from a nuclear strike.

But it is not really necessary to destroy the Iranian program down to the last centrifuge in order to effectively stop it. If serious damage can be inflicted on the electrical grid and on fuel depots and transmission facilities, such damage could effectively stop nuclear production. Even where independent electrical generation facilities are housed in underground silos, their fuel supply will eventually dry up. More important, plunging Teheran into darkness in a way that will not only cripple the government and its command and control centers but will make civilian life unbearable may be more than enough to return the Iranian leadership to its senses.

Iran seeks a nuclear capability for more reasons than fulfilling its dream of destroying Israel (they know Israel can retaliate, so even if they fervently wanted to destroy it, they might just continue to arm Arab terrorist proxies and have them bear the consequences, as they have done with Hezbollah). Iran needs an atomic weapon to one day take control of the flow and the price of oil, a strategic goal it has pursued since the days of the shah. Once it is in possession of an atomic weapon, it could control the Straits of Hormuz with impunity and dictate a constant, if gradual rise in the price of oil. No one will risk an atomic confrontation, let alone the threat of the Saudi oil fields being incinerated, to prevent a gradual rise in the price of oil.

The Iranians could then secure all the income they need to preserve--and even spread--their revolution. See what Arab petrodollars have done to the immune system of Europe, how they incapacitated it and made it impotent in dealing with growing Islamic radicalism in its midst. An Iranian-induced transfer of wealth caused by a steep rise in the price of oil will dwarf the already dramatic impact that Arab petrodollars have had on European politics and culture.

Pushing the hated West into economic decline will make it so weak politically and militarily that it will be in no position to resist when the time is ripe for the Iranian takeover of Saudi Arabia, its oil fields, and no less importantly in Tehran's eyes, Islam's holiest places. Shiite control of these Holy Places and of the Muslim jihad will finally bring the hated Sunnis, and especially the most hated Wahhabis, under Shiite domination, and fulfill another dream and strategic goal of the Islamic Republic of Iran. Shiite jihad will triumph "peacefully."

This is the strategic calculus we must weigh when assessing the risks and benefits of taking timely action to stop Iran from acquiring a nuclear capability.

Daniel Doron is president of the Israel Center for Social and Economic Progress, an independent pro-market policy think tank.

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