Behind the veil
Iran has 9 per cent of the world's oil reserves and is the second largest oil producer within the Organisation of Petroleum Exporting Countries (OPEC). More importantly, it has 13-15 per cent of the world's reserves of natural gas - the largest in the Gulf region and the second largest in the world. It is the only country that has access to the Caspian Sea as well as the Persian Gulf. This pivotal route is blocked because of a long-standing diplomatic standoff between Iran and the US. Relations between the two have been bitter since the 1979 Islamic Revolution and the hostage crisis. The Iran-Libya Sanctions Act (ILSA) of 1996 imposed sanctions on non-US companies investing more than US $20 million annually in the Iranian oil and natural gas.
After US action against the Taliban and its terrorist allies began in Afghanistan, there was talk of improvements in Iranian-US relations. After all, Iran had supported the opposition to the Taliban. But all talk of rapprochement came a cropper on January 29, 2002. US President George W Bush's state of the union address made a reference to North Korea, Iraq and Iran: "States like these, and their terrorist allies, constitute an axis of evil, arming to threaten the peace of the world." These words didn't go down too well in the international community. Russia and China, among others, were quick to express their disapproval of the axis of evil speech. The European Union (EU), too, was quick to distance itself from the US view. There are some clear signs that the US sanctions won't keep Iran isolated in the long run.
Iran's main trading partner is the EU, to which its imports totalled at US $8.12 billion in 2000 - more than 80 per cent of this is oil. The EU's exports to Iran in the same period stood at about US $5.3 billion. And there are already signs of strengthening EU-Iran relations. In June, the EU approved resumption of trade ties with Iran in the face of heavy pressure and lobbying from the US and Israel. Russia has been helping Iran to complete work on the Bushehr nuclear power plant. Iran and India signed a memorandum of understanding in 1993 to build an oil/gas pipeline through Pakistan.
The US, on the other hand, is keen to woo Russia away from Iran by investing huge amounts in its oil industry. "The first US-Russia energy summit, held in Houston at the instigation of the two governments, underlines that at last Russia has something commercial the US really wants: oil," says a Financial Times editorial.