Conceding Defeat

ch has never before arisen in the use of economic sanctions for diplomatic purposes, arises because of the state of the global oil market today.

Oil prices have more than doubled in the past three years because steadily rising demand, especially from China, has run up against the limits of global production capacity. If Iran, which is the world’s third-largest oil producer after Russia and Saudi Arabia, had even a small part of its exports removed by sanctions from world markets, the oil price would shoot up to $100 or more. As long as the percentage increase in oil prices was higher than Iran’s percentage loss of export volumes, sanctions would result in the Government’s total revenues going up, instead of down.

Iran also controls the Straits of Hormuz, the narrow strip that separates the country from the Arabian peninsula and which provides a passage for roughly 40 per cent of the world’s internationally traded oil. If Iran were to close the Strait of Hormuz or otherwise threaten foreign shipping in response to an attempt to impose economic sanctions, the oil price would jump not just to $100 a barrel but probably to $150 or beyond. […]

What then should America and its allies do in the face of Iran’s nuclear defiance? The answer is clear: concede defeat. Iran has won this tussle and there is no point in pretending otherwise. Instead of trying to stop Iran’s nuclear programme, the international community must bring Iran back into the civilised world. The only way to do that is to stop issuing empty threats and to start offering Iran real incentives for co-operative behaviour — non-aggression guarantees from America and Israel, removal of the residual US economic sanctions dating back to the 1980s and the prospect of steadily improving treatment in investment and trade. Of course, such a U-turn seems inconceivable while President Bush remains in office. But remember President Nixon’s historic opening to China as he was losing the war in Vietnam. To paraphrase Johnson, a politician’s mind can be concentrated wonderfully by the knowledge that he is faces defeat.