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STRATFOR.COM's Global Intelligence Update - 06 April 2000

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STRATFOR.COM Global Intelligence Update
06 April 2000

Iran Captures Iraqi Oil and U.S. Attention


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.


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

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

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

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.

(c) 2000, Stratfor, Inc.




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