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STRATFOR.COM's Global Intelligence Update - 06 April 2000 By The Internet's Most Intelligent Source of International News & Analysis http://www.stratfor.com/ __________________________________________ Know the every move of your competitors -- even before they do. Stratfor Intelligence Services http://www.stratfor.com/services/ __________________________________________ WHAT'S GOING ON IN YOUR WORLD Have you visited our web site recently? We've made some new changes that make using the site more efficient, allowing greater access to thousands of reports. Visit http://www.stratfor.com today. __________________________________________ STRATFOR.COM Global Intelligence Update 06 April 2000 Iran Captures Iraqi Oil and U.S. Attention Summary The recent Iranian seizure of an Iraqi oil tanker and the Iranian government's subsequent comments indicate a significant shift in its policy toward the United States. Tehran appears to be cooperating with Washington to strangle Baghdad. Iran would do this for two reasons - to keep the price of oil stable in the short term and to help solidify what is now a fluid U.S. policy in the region. Iran's first goal is slightly at odds with short-term U.S. policy - lowering oil prices - but Washington will be willing to accept that price in order to lock down a long-term goal, a positive relationship with Iran and contain Iraq. Analysis The marine patrol of Iran's Revolutionary Guard Corps (IRGC) seized an Iraqi oil tanker on April 1, according to the Islamic Republic News Agency. Iranian Foreign Ministry spokesman Hamid-Reza Asefi told Agence France Presse that the ship was seized because "it is our policy to forbid and prevent all smuggling." Asefi added, "it is also a sign of Iran's respect for the resolutions of the United Nations." The vessel, registered under a Honduran flag, was smuggling 2,500 tons of Iraqi crude oil when it was intercepted and impounded. Honduras is a common flag of convenience for older and smaller vessels, because the country has one of the most liberal open Ship Registries in the world. According to the Energy Information Administration, Iraq smuggles about 100,000 barrels per day (bpd) of crude oil via several routes. One common smuggling route out of the Persian Gulf follows the Iranian coast until entering international waters near the Strait of Hormuz. By utilizing Iranian waters, ships illegally carrying Iraqi crude can avoid detection by the U.S. and British Maritime Interception Force (MIF), which enforces U.N. sanctions against Iraq. Iran is certainly not known for policing smugglers of Iraqi oil, and the tanker seizure could simply have been an isolated incident involving money. According to the BBC, the Iranian navy reportedly charges a toll of $50 per ton of smuggled Iraqi oil, a sum that secures right of passage and buys smugglers false papers hiding the origin of their cargo. This is the least plausible explanation, though, since the Iranian Foreign Ministry used the incident to publicly state its policy of being anti-smuggling and pro-United Nations. A more probable explanation is that Iran is pursuing its own multi- faceted agenda of keeping oil prices high and pressuring Iraq, while giving a nod to the United States. Iran saw that U.S. overtures toward Tehran had diminished because the two were at odds over short-term oil price concerns. This threatened Iran in two ways. First, it risked the United States opening more to Iraq - evidenced by the UAE and Bahrain re-opening embassies in Baghdad - to the detriment of Iran. Second, a U.S. easing of sanctions on Iraq threatened to lower oil prices too much for Iran's long-term interests. Iran's crackdown on Iraqi smuggling cleverly forwarded the country's dual agenda. It enforced U.S. imposed sanctions, thus undermining U.S. short-term oil policy in favor of U.S. long-term Iraq policy. And it aided the attempt to keep oil prices up. At the recent OPEC meeting, Iran refused to agree with its fellow members on how far to raise the production quotas. Iran's oil infrastructure is running at near full capacity. Thus, the country gains little from an increase in production, which will ultimately drive the price of oil downward. By cracking down on Iraqi smuggling, Iran can potentially take a reasonable amount of oil off the world market - or at least delay it - by forcing Iraq to look for new smuggling routes. At the same time, Iran is giving a political nod toward the United States following Washington's recent relaxation of Iranian import restrictions and its lenience on Iraqi sanctions. In mid-February, the chairman of the U.S. Joint Chiefs of Staff "approached" Iran about the growing amount of illegal Iraqi oil being smuggled through the Gulf. Iran appears to be cooperating, and Washington's response is clear. U.S. State Department spokesman James Rubin said on April 5 that if the reports are true, "we are pleased to see that Iran is taking measures against this illegal traffic." Iran's move also comes amid increased tension between Iran and Iraq. Last month, Iraq accused Iran of staging a mortar attack in Baghdad that killed four people. Iraq also claimed to have shot down two Iranian unmanned reconnaissance aircraft. Baghdad also harbors the armed Iranian opposition group, the People's Mujahadeen Khalq (MKO), which claimed responsibility for a recent mortar attack in Tehran. But, Iran can threaten Iraq's oil smuggling routes without an increased Iraqi military threat since Iraq's military has been largely kept at bay by U.N. sanctions and enforcement of no-fly zones. The seizure also gains significance in light of the history of Iran-Iraq tanker wars during the 1980-88 war. Iran would not have made the move if it were not confident that the United States would keep the Iraqis from retaliating against its ships. Tehran either gambled that the United States would be forced by its own sanctions to condone the move, or it had back-channel assurances of U.S. cooperation. The first possibility suggests an opening for better relations, and the latter would indicate that there has already been a major breakthrough in U.S.-Iranian relations. Either way, Iran just made a major move to shake the United States out of its political daze. The real test will be whether or not Iran continues its tacit cooperation with the United States. If so, it will be a big step forward for U.S.-Iranian relations. Strategically, Iran has everything to gain. 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