Iran Is In A Costly Cold War, Having Crosses The West's Nuclear Red Line:.

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NICOSIA - US led-Western powers are waging a cold war against the Shi'ite theocracy of Iran over its nuclear ambitions. The campaign comes at a moment of unique vulnerability for Iran's oil industry, which faces challenges from rising domestic energy consumption, international isolation, a populist spending spree by President Mahmoud Ahmadi-Nejad and trouble closing contracts with foreign oil firms - a recipe for potential disaster in a country with one of the world's largest oil reserves.

In December, Oil Minister Kazem Vaziri-Hamaneh admitted that Tehran was having trouble financing oil projects in a rare acknowledgment of the economic cost of its nuclear dispute. Vaziri told Iranian student news agency ISNA in September that Iran's annual crude oil output decline from producing fields was as much as 500,000 b/d. US sanctions since 1995 on involvement in Iran's petroleum sector have limited the technology available to maintain output from its oilfields.

The Washington Post on Jan. 9 quoted Dr. Mohammad Hadi Nejad-Hosseinian, Iran's retiring deputy oil minister for international affairs, as warning: "If the government does not control the consumption of oil products in Iran...and at the same time, if the projects for increasing the capacity of the oil and protection of the oil wells will not happen, within 10 years, there will not be any oil for export" (see overleaf).

The US and EU are seeking to ratchet up pressure on Iran over its controversial nuclear programme in the wake of a UN Security Council (UNSC) resolution last month which declared almost all of Tehran's nuclear activities illegal. Some EU diplomats have shown a growing readiness to impose additional bilateral sanctions on Iran above and beyond those mandated by the UNSC - a move long championed by the US.

One source of such measures is an "a la carte" list of possible EU sanctions on Iran drawn up by EU foreign policy chief Javier Solana almost a year ago. This includes a possible crackdown on export credits for companies doing business with Iran and the declaration of a formal arms embargo on Iran.

At the same time, the new UN regime - which took months to negotiate in New York - appears to have surprised parts of Iran's leadership, with differences emerging on how best to respond. After a period in which Iran saw its regional influence increase at relatively little cost, Tehran now faces greater isolation.

The FT on Jan. 9 quoted an EU envoy as saying of the Iranian leadership: "We know that they won't meet their obligations to the UN during the 60-day deadline set by the resolution", referring to the resolution passed by the UNSC on Dec. 23. The envoy added: "After that, a big issue is going to be what the EU and others can do beyond what the UN called for".

Many of the specific steps called for by the UNSC resolution are focused on preventing Tehran from acquiring "dual-use" goods that could be used in its nuclear and missile programmes. The resolution does not impose broad-based economic sanctions, but prohibits UN member-states from financing Iran's nuclear activities.

However, it goes much further than the UN's earlier actions in outlawing a wide range of Iran's nuclear activities, including research and development and a heavy water reactor for which Tehran had requested UN funding only a few months earlier.

The previous resolution - which carried a deadline of Aug. 31 last year - had merely demanded that Iran suspend uranium enrichment, a process that can generate both nuclear fuel and weapons grade material.

The FT quoted a "regime insider" as having said there was no chance Iran would accept the resolution within the 60-day deadline, and would go ahead with plans to extend the number of centrifuges - devices for enriching uranium - in the research plant at Natanz. But pragmatists in Tehran have become bolder in pronouncements, because of their concern at the scope of the UN resolution and because of the reverse suffered by President Ahmadi-Nejad in the Dec. 15 elections. The FT quoted the "insider" as saying: "The mood has shifted but not yet policy. There may well be changes in the leadership's approach, but not immediately".

However, Germany, which currently holds the EU presidency, has reservations about further sanctions. The FT quoted a European diplomat as saying: "Responsible policy would be to look at how to bring this back to a political process rather than studying what else you can do in the way of sanctions". Iran's Fars news agency on Jan. 8 ran a long interview with Hossein Mousavian, a former nuclear negotiator close to former president Ali Akbar Hashemi Rafsanjani, in which he described the UNSC as the "highest international legislative authority" and criticised the government of Ahmadi-Nejad for attacking the council's resolution as "illegal". But on Jan. 8, Supreme Leader Ayatollah Ali Khamenei reiterated that nuclear energy was "a source of pride for the Iranian nation and Islamic world" and that Iran would not give up its "right".