Baltimore, MD-Energy dependence is not a problem just for the United States. Iran is also plagued by its own energy needs.

The Energy Crisis

An energy crisis looms over Iran's future. They currently consume half of their oil production. As the consumption rate increases, their available income will seriously diminish.

In 2004, oil exports accounted for 65% of the government's revenue. Any disruption within their oil sector would cripple their economy. And their oil industry is continually degrading.

The failure to modernize drilling and recovery methods is a major reason why they are unable to increase oil production.

And improvements in Iran's oil industry may not happen.

The inability to attract foreign investors has led to less oil production. Consistent failure to meet production quotas costs Iran more than $5.5 billion dollars a year.

Iran's natural gas industry is also in jeopardy. They hold the world's second-largest reserves of natural gas, but their facilities are severely underdeveloped. So in order to meet their annual demand, Iran has become a net gas importer.

Future development projects may be too late to meet the rising consumption rates. Among a few of the smaller deals, Iran has made a $16 billion dollar agreement with Malaysia to develop two offshore gas fields.

The Nuclear Solution

Iran's solution to its energy crisis is nuclear energy.

Nuclear power will enable them to offset the demands of their growing population and rapid industrialization. (The population has doubled in 20 years.)

Producing almost 1.4 billion barrels of oil every year means their estimated 133 billion barrel reserve will last approximately 75 more years. But this figure also assumes that extraction rates remain the same.

Iran announced this week that two cascades of 164 centrifuges have been installed. These are the first of the planned 3,000 centrifuges to be set up over the next five months.

Critics note that would give Iran the capability of producing an atomic bomb within a year.

This news comes a day after Iran announced it has stopped all voluntary cooperation with the International Atomic Energy Agency (IEAE). In spite of this, however, Iran is still considering Moscow's proposal to have its uranium enriched by the Russians.

Make Sanctions, not War

The most efficient way to stop Iran is by sanctions, rather than direct military action.

Losing foreign investors is a peril to Iran's oil industry. It could result in a loss of almost 300,000 barrels per day of exports.

Naturally, the blame is on the United States.

U.S. sanctions have restricted Iran from gaining the technology needed to sustain productivity from its oilfields.

In 1996, the U.S. passed the Iran and Libya Sanctions Act. The Act gave the president the authority to impose sanctions on any company investing more than $40 million dollars in Iran. It dissuaded big oil companies from developing the vast Iranian oilfields.

If Iran relaxed a bit on its contract terms, they could easily overcome these sanctions. All they need to do is offer a higher return rate in order to successfully attract foreign investment.

Since Iran doesn't allow foreigners to own Iranian resources, a buyback contract can be implemented. This offers oil companies a share in profits over a short period of time after a project begins production. The profits are compensation for developing the property. But this tends to dissuade investors even more, considering that additional U.S. sanctions are also imposed.

Military action taken against Iran will only strengthen the country's resolve, potentially leading to a situation similar to the Iraqi quagmire the U.S. is currently experiencing.

Besides, why attempt to militarily destroy Iran when the Iranian government is already doing a good job of it?

Until next time,

Keith Kohl