The Islamic Republic News Agency reported that The Expediency Council Chairman Akbar Hashemi Rafsanjani said "We cannot be intimidated". Iranian President Ahmadinejad stated that his people will not yield to threats from Western States and that Iran will continue with its nuclear research program.

In its confrontation with the U.S over its clandestine nuclear program, Iran is threatening that it will inflict "pain" on the U.S. Such threats should not be dismissed as mere rhetoric for media consumption. Iran has a number of powerful cards to play. The two pronged strategy would involve the economic and security aspects.

Iran can create problems on several fronts, namely in Iraq, the neighbouring Gulf States, chiefly Bahrain, Saudi Arabia and Kuwait, also in Lebanon and the Palestinian territories. It can cripple the world economy through planned disruption of oil exports. Iran's bravado is based on the assumption that the U.S. is embroiled in the Iraqi quagmire and is no mood to enter into a new military conflict, and the fact that America relies on the Middle East for more than 25% of its oil imports.

The Iranian regime can cause havoc in Iraq through allies, chiefly the Shi'ite militias. Since the fall of the fiercely anti-Iranian Saddam regime, Iran has reportedly exploited the unsecured borders with Iraq to move men and materials into Iraq. The Iraqi National Accord Party headed by former Iraqi Prime Minister Ayad Allawi, a secular Shi'ite accused pro-Iranian Shi'ite Coalition United Iraqi Alliance and the followers of the firebrand Shi'ite cleric Moqtada Al-Sadr of carrying out revenge attacks against Sunni Mosques and thus fuelling the cycle of violence. It was also reported that Iran is investing heavily in commercial projects in the sSouth of Iraq where Shi'ites are a majority.

Indeed it can be argued that the failure of the U.S. and its allies in securing the borders after the invasion of Iraq helped Iran to penetrate Iraq and to establish an extensive network of friends, agents and collaborators whose aim is to create an Iranian style regime dominated by Shi'ite clergy. This is the grand design. However the pro-Iranian elements could target U.S. military personnel, U.S. companies and installations. They could also target Iraqis believed to be supporters of the U.S. effort to establish democracy and stability. Paradoxically the Shi'ite militias could become de facto allies of the predominantly Sunni insurgents who are currently causing mayhem in Iraq. This is not to say a coalition between Sunnis and Shi'ites in general which is unlikely. Historically the Shi'ite-Sunni split resulted from a dispute over succession after Prophet Muhammad's death in 632 AD.

However, in the present situation this would mean the expansion of the insurgency base, which would now include disparate elements who until recently were cutting each others' throats. Their opposition to Israel and the U.S would unite them into a common front. This is at least a likely scenario in Iraq.

"Equally alarming is that sectarian feelings in Iraq may spread to Bahrain," said Mansoor Al-Jamil a Shi’ite who is editor in chief of the Bahraini Alwasat Newspaper. Earlier this year a number of Bahraini Shi’ites were killed by the security forces in Manama, the Bahraini capital, on February 8, during the Ashura rituals. Ashura is a Shi'ite time of mourning over the killing of Hussein, the nephew of Islam’s founding Prophet.

The Shi'ites of Kuwait, Bahrain and Saudi Arabia have faced discrimination and are now more vocal in demanding reforms and justice. They look to Iran for spiritual guidance. Iran's ability to cause problems in Bahrain and Saudi Arabia and Kuwait should not be underestimated. The Shi'ite populations of these countries are already agitating for more rights. The United Arab Emirates is a home for 560,000 Iranians who would not stand idle if their country of origin is attacked.

Lebanon is another cause for concern, where Hizbulla and Amal militias rely on Iran for financial and logistical support. Iran can mobilize its long time friend Syria in fomenting unrest in Lebanon through Hizbulla and Amal, by targeting U.S and Western interests and mounting a new campaign of assassinations against individuals and groups deemed to be friendly to the U.S. and France. The other possibility, which cannot be ruled out, is the reactivation of Hizbulla attacks along the relatively quiet northern borders of Israel with Lebanon. Hizbulla has always been ready to obey and carry out the Iranian and Syrian agendas in relation to Lebanon and Israel.

Of particular concern is the situation in the occupied territories, where Hamas rose to prominence by winning the Palestinian elections. Judging by the statements from various Hamas spokesmen, it is apparent that Hamas enjoys a close relationship with Iran. Hamas leaders recently traveled to Tehran to receive the blessings of the regime.

It is worth noting that a number of suicide attacks against civilian targets in Israel were orchestrated by Iran and carried out by Hamas. The Palestinian Authority as well as Arab commentators condemned the July 8th 2005 suicide attack in which five Israeli civilians were killed and attributed the timing to what they described "Iranian fingers," as this operation took place only 24 hours after the appalling July 7th suicide bombings in London.

Through Hamas, Iran can scupper any attempts at reviving the peace process by encouraging Hamas to stick rigidly to its uncompromising stance on such matters as acceptance of the Road Map and recognition of Israel. Iran can do this by promising economic aid and reminding Hamas of Khaled Mashaal's unwise remarks in Tehran last January that Hamas stands by Iran if the latter is attacked.
The most worrying question is whether Iran would be reckless enough to contemplate launching missiles against targets in the neighbouring Gulf oil producing countries to disrupt oil supplies and hurt America. More ominously would be the targeting of Israel which would almost certainly result in retaliation and escalation of the conflict.

Targeting the oil installations in the neighbouring Gulf States and imposing a blockade in the Gulf shipping lanes could push the price of oil to levels so high that they would make the current price of around 63 US dollars per barrel seem reasonable by comparison. This would slow the global economic growth and cause panic in the world stock exchanges leading to a world economic recession.

The easiest option for Iran to harm the U.S. is to shut its own oil production and exports. Imposition of sanctions against Iran would squeeze world oil markets with an export ban. Europe, China and India would feel the cuts immediately. Some observers believe that China and India might oppose sanctions against Iran. Failing that, they may be tempted to conclude under the counter deals to secure the oil supplies to keep their industries going.

This would not be as easy as it sounds, especially if the UN Security Council demands that the shipping lanes in the Gulf are rigorously monitored. Secret oil deals are unlikely as China and India would not risk damaging their relations with the U.S. which would far outweigh the damage resulting from the disruption to oil supplies.

The US does not import Iranian oil directly, but stopping Iranian oil production would cause a price hike for the American consumer. An export ban would have an impact on world markets, as it would remove about 3 million barrels a day from the world market. Prices would rise to USD $100 or more per barrel. Iran is the second largest oil producer in the Middle East and holds 10% of world reserves.

Some oil analysts believe that supplies of oil are already tight due to South East Asian demand and a strong US economy. Kuwait and Saudi Arabia are producing to maximum capacity and they cannot do a lot in the short term to compensate for shortfalls due to an Iranian embargo.

Russia suffers from chronic infra-structural problems and cannot therefore increase production in the immediate term. Nigeria the producer of high quality light crude (Bonny Light) is not producing to full capacity owing to armed insurgency in the Delta region where the biggest fields are located. Iraq production is unreliable due to the chaos and violence that are tearing the country apart. In the short term the picture is grim.

The deputy secretary of Iran’s Supreme National Security Council Javad Vaeedi told reporters in Vienna recently that Iran will have to review its oil-export policy if the pressure mounts against Iran, meaning the oil would be used as a weapon in the confrontation with the world community. Mr. Ali Larijani, Iran's chief nuclear negotiator said Tehran was not keen to use oil as a weapon, "but if conditions changed it could affect our decision."

The impact of an interruption in oil shipments is not one sided, however. Iran will suffer too. It would deprive Iran of much needed income which would bring hardship to the hard pressed Iranian population the majority of whom are classified as poor by western standards. According to the Begin-Sadat Centre for Strategic Studies, Iran’s threats are misplaced as the country is in a desperate need of technological know-how and financial investments to develop its gas and oil sectors.

Iran relies on imports for many of its refined petroleum products requirements. Moreover 50% of the population is under 25 and the unemployment rate is 11%, which means Iran needs to create 1 million jobs a year. It is therefore ludicrous for the Iranian President to claim time and again that the West needs Iran more than Iran needs the West. The damage to Iran can be more severe than is admitted.

The US is watching the situation, and can cause trouble for Iran too, without imposing sanctions. In the coming months, the U.S State Department intends to increase the number of diplomats monitoring the situation in Iran from one to four or more creating a diplomatic presence for the sole purpose of keeping an eye on Tehran. Washington has accused Tehran of attempting to further destabilize Iraq and is frustrating the democratic ambitions of its own people. The US recently announced $85 million in aid to promote democracy and radio and television broadcasts inside Iran.

We must remember that the popular Ahmadinejad is a democratically elected leader and he enjoys the support of the masses, therefore he feels strong enough to make threats. Iran's ability to cause mischief cannot be underestimated and therefore it would be foolish to ignore the threats.

Nehad Ismail
UK based commentator on Middle East Affairs

Copyright 2006 by MidEastWeb for Coexistence and the author.