The Marketplace Report: Iran's Nuclear Ambitions

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Iran's decision to restart its nuclear program this week is already rippling through international financial markets. Madeleine Brand talks with Stephen Beard of Marketplace about how Iran's nuclear ambitions are driving up oil prices and raising the possibility of economic sanctions.

MADELEINE BRAND, host:

Back now with DAY TO DAY. I'm Madeleine Brand.

A nuclear standoff with Iran continues today. The US and some European states believe Iran is now developing nuclear weapons. President Bush said this morning the United States would seek a diplomatic solution to that dispute, but Iran also made its own statement warning that all snap inspections of its nuclear facilities would end if the United Nations threatens sanctions. This tension is making oil markets more volatile. Joining us now from London is "Marketplace's" Stephen Beard.

And, Stephen, there's a meeting in London next week, I believe. What is that meeting likely to accomplish?

STEPHEN BEARD reporting:

It's very difficult to tell, Madeleine. The five permanent members of the UN Security Council will be here--the US, the UK, France, Russia and China--but they're not all singing from the same hymn sheet. The US, Britain and France are probably the most determined to confront Iran, but China and Russia are more ambivalent. The Chinese are buying a lot of oil from Iran, and Russia is selling the Iranians quite a bit of civilian nuclear technology, so they don't want to rub the Iranians up the wrong way.

BRAND: So we're a bit away from seeing UN sanctions against Iran.

BEARD: Quite a long way, I would say. The UN's nuclear watchdog, the International Atomic Energy Authority, would have to agree to refer this to the Security Council, but the Authority's board isn't scheduled to meet until March. Now the EU is pressing for an earlier meeting, but really this could all take months.

BRAND: Well, in general, what's the appetite there for sanctions against Iran?

BEARD: I think there's a lot of nervousness about this. I mean, Iran, after all, is the world's fourth biggest oil exporter, two and a half million barrels a day. And the world can't afford to lose any of that oil at the moment. Now it's highly unlikely that the Security Council would try to cut Iranian oil exports. It's more likely to punish Iran in other ways, imposing a UN ban on foreign investment in Iran, for example. But inside Iran, this has become a matter of national pride, and there must be a danger that UN sanctions could tip the country into retaliating by withholding some or a lot of its oil from the market.

BRAND: And the price of oil has been rising recently. How much of this is related to this standoff with Iran?

BEARD: Probably quite a bit. It's now--the price is now hovering around $65 a barrel, when some analysts say that the economic fundamentals suggest it should be more like in the mid-50s. The market's deepest fear--I mean, the real nightmare scenario--is that Israel might get involved and take the kind of direct action against Iran that it once took against a nuclear facility in Iraq and bomb it. That would inflame the Muslim world and could provoke an OPEC oil embargo with catastrophic consequences. So even the remote possibility of that happening is likely to underpin the oil price for some months to come.

BRAND: Stephen Beard of public radio's daily business show "Marketplace," and "Marketplace" is produced by American Public Media.

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