Iran’s pursuit of a nuclear weapon threatens to ignite a nuclear arms race across the Middle East. The U.S. cannot tolerate the level of instability that would result from Middle Eastern states developing nuclear weapons, as the region remains vital to the energy security of the United States. Sanctions placed on Iran by the international community have thus far been unable to force Iran into a position where it is willing to seriously negotiate. It is my opinion that more direct action is needed to force the hand of Iran’s leaders.

Iran perceives itself as being a rising regional hegemon and is determined to play a dominant role in the Gulf. The Iranian state believes that the United States is intent upon acting on its stated policy of regime change in Iran and thus views the U.S. presence in Iraq and Afghanistan as the greatest threat to its national security. Iran also sees itself as being surrounded by unfriendly neighbors, two of whom –Israel and Pakistan- are armed with nuclear weapons.

Available intelligence suggests that Iran is pursuing a nuclear weapons program. This evidence includes:

• Iran’s building of a nuclear enrichment plant in the desert at Natanz. The facility is designed to house 54,000 centrifuges but only 8,000 are believed to be operational. The fact that this facility has been converted into an underground bunker and is surrounded by antiaircraft guns strongly suggests that the nuclear activities contained within are not IAEA compliant.
• Data extracted from Iran’s computer networks in 2007 showed the Iranians to be in possession of blueprints for a nuclear warhead.
• The recent discovery of a hidden nuclear enrichment plant located inside an Iranian Revolutionary Guard base about 20 miles from the town of Qum.

While the previous administration recognized the Iranian threat, the Bush policy of placing conditions on negotiations has only allowed the Iranians to progress further on their timeline toward achieving a weapon. Furthermore, what seemed like early success on the part of the Obama administration in getting the Iranians to return to the negotiating table was actually just another attempt at stalling.

While air strikes have long been the solution of choice for dealing with Iran's nuclear program, expert analysis has shown that at best a coordinated air strike would merely delay Iran's acquisition of a nuclear device by approximately three years. Secretary if Defense Robert Gates is also an advocate of this analysis. I propose that the US use "smart power" instead to drive the Iranian economy to near collapse through a "Price Attack."

While Iran’s pursuit of a nuclear weapon appears likely, I believe that Iran’s desire for nuclear energy is genuine. Oil industry experts are predicting that Iran’s oil exports will decline to zero by 2014-2015. This comes as a result of domestic energy demand growth (6.4%) exceeding supply growth (5.6%) every year since 1980. Iran’s dependence on its shrinking oil export revenue suggests that the regime may be more vulnerable than previously believed.

Iran’s oil export crisis is a strategic opportunity

• The US should undertake a non-violent economic attack on the Iranian government that seeks to collapse their economy thereby denying them the resources to pursue a nuclear weapons program
• A price attack seeks to erode market power and reduce the price of oil. This can be accomplished through the adoption of increased fuel efficiency standards that overtime will decrease the demand for oil and force cartel producers to defend price by reducing supply. This is exactly what happened to Saudi Arabia in the 1980’s. Eventually Saudi Arabia was forced to increase production in order to reclaim market share and stave off bankruptcy, which caused the price of oil to drop further
• The goal of a price attack would be to force Saudi Arabia to repeat this behavior. As a result, Iran’s oil revenues would collapse because unlike other OPEC countries, Iran cannot increase production to compensate for falling price due to its crumbling infrastructure
• According to a report published by the National Academy of Sciences, a 50% increase in U.S. fuel efficiency standards would be enough to lower global demand by 2%-3% in 5-7 years, which historically has been enough to trigger a price defense by the cartel

Policy Implications

• Likely to constrain Iran in the long run, while simultaneously yielding monetary savings for the U.S.
• There is a chance that the price attack may be too successful and lead to the complete collapse of the Iranian state resulting in a regional power vacuum
• Policy relies upon Iranian oil exports continuing to decline due to a lack of investment in infrastructure. However, Europe and China continue to defy sanctions by investing in Iran’s energy sector

Yemen's now infamous role on the world stage as the newest state to fail and become a terrorist safe haven can most easily be explained by its dwindling oil production. Like many middle eastern states, Yemen's government relies on oil exports for roughly 80 percent of its revenue. However, in the past six years Yemen's oil output has shrunk from 450,000 barrels per day to just 180,000 barrels per day. Until recently this sharp decline was masked by record high oil prices, but as oil prices have normalized, Yemen's economy finds itself on the brink of collapse. This loss of revenue comes at a particularly bad time for the Yemeni government as their country's security concerns continue to escalate. Yemen is currently fighting Shiite militia's in its Northern provinces not to mention the growing presence of Al Qaeda and other foreign fighters throughout the country.

The influx of Al Qaeda into Yemen can be directly linked to that states failing economy. Experts predict that Yemen's remaining oil wells will run dry within the next ten years. Impending economic destitution has however not caused Yemen's government to focus its efforts on creating some sort of economic life raft by say for instance reorienting itself towards a labor based economy. Instead Yemen's leader, Ali Abdullah Saleh, has chosen to reaffirm his family's stranglehold on power by appointing his kin to key government positions with the ultimate goal of ensuring that his son Ahmed succeeds him to the presidency. However, with less and less money to spend on security services to enforce his power, Mr Saleh is essentially securing his family's role as nothing more than the Mayor and city counselor of the capital of Sanaa. No national income not only means no money for a military but also ensures a complete lack of social services for anyone living outside of the capital, which after all is the primary purpose of having a government in the first place.

As we have seen in Lebanon, Afghanistan, Gaza, Pakistan, Egypt and countless other areas of the Muslim world, when governments fail to provide the most basic of services, extremist groups the likes of Hezbollah and Al Qaeda are more than happy to step in and foot the bill. This is what we are now coming to see play out in Yemen. As government revenues continue to shrink, security throughout the country deteriorates as less forces are deployed and corruption abounds. Less security means greater ease of movement for terrorists who come to Yemen not to hide but instead to operate in plain sight in the rural countryside where overtime they cement themselves into local tribal culture through inter marriage (a common AQ strategy).

The U.S. answer to the realization that Yemen is a failing state has been to double the security aid we send annually to Yemen to $140 million. This is a ridiculously low sum of money when you compare it to the $2 billion that Yemen's GDP has been declining by over the last 3 years. Furthermore, sending security aid to a country whose president considers the security of his family to be the nation's number one national security concern is really not money well spent. A smart use of the money that the U.S. borrowed from China, would instead be on promoting local economic development through the opening of vocational schools and the funding of local industries like cotton production and leather tanneries. Without this investment, Yemen is likely to go down the same road as Afghanistan with its farmers abandoning traditional crops for narcotics. Many growers in Yemen have already switched to growing Qat, a mild amphetamine quite popular in Yemen. How long before AQ starts taxing this trade?

The lesson here is that we need to tackle Yemen's problems less kinetically and more economically. The reason it is so important to get this right in Yemen is that Yemen is just the first example of a problem the international community is going to have to deal with more and more in Middle East in the coming years. The oil is running out and in many nations much larger than Yemen (Saudi Arabia, Iran, Iraq) there is simply not enough of an economy presence to make up the difference.

And that's my fifty cents (inflation....)