God and Gas in Iran

MUSCAT -- In the wake of failure of the parties of the P5+1 to reach an agreement with Iran on its nuclear ambitions and the continued collective imposition of economic sanctions, Western powers would do well to remember the prudence of John Maynard Keynes ahead of the Treaty of Versailles in 1919.

As a representative of the British Treasury, the young economist warned the victors of the First World War that imposing a strict policy of war reparations would irreparably damage the brittle German economy, and provoke the "forces of Reaction and the despairing convulsions of Revolution." As Keynes rightly predicted, Germany's failure to meet its wartime payments triggered the collapse of industry, as well as the von Hindenburg government, and ultimately paved the way for an ambitious Adolf Hitler to garner widespread support in his promise of a new future for the German people.

Currently, while many Western commentators believe the punitive impacts of oil sanctions will eventually force Tehran's hand in future negotiations, Keynes' words of caution should reverberate in their ears.

Iran is a distinct civilization that sits atop the world's second largest natural gas reserves . Yes, it is flanked between Iraq and Afghanistan -- the home of multiple failed Western interventions and current civil wars. However, unlike Iraq or Syria, the bulk of the Iranian people are united by a Shia religion and Persian culture. Iran is not beset by the same sectarian strife that so plagues the "countries of state lines" -- that is, the hangover of the Sykes-Picot Agreement and the unnatural boundaries imposed by Western powers after the First World War.

Undoubtedly, sanctions have severely impacted the Iranian economy. The imposition of a ban on levels of crude exports has forced Tehran to cut public spending, cash handouts and curtail lavish fuel subsidies. However, oil exports to Iran's largest customers -- China and India -- actually increased in June and July 2014. In fact, China's imports of Iranian oil were up 38 percent in June 2014 from the previous year. India's imports increased about a third between January and June. This significant reality was casually dismissed by Washington and deemed to be just a "pattern of the markets."

Much to the West's chagrin, Iran continues to find a market for its crude, and while sanctions on the oil and banking sectors may have a temporarily crippling effect, Iran's bounty of natural gas may mean its people laugh all the way to the bank. The country's gas reserves are second only to Russia : at current production levels, this is enough to last about 200 years . In a world of increasing demand for LNG, Iran's natural gas abundance will enable it to flex its muscles far beyond its supply of oil. One need only look to the neighboring Gulf state of Qatar to see how Doha's LNG wealth enables the tiny country to punch above its weight in the region and beyond.

GAS IS GOOD

Iran's natural gas might -- a reality astutely ignored by the Western media who praise the crippling effects of oil sanctions -- is not something to be feared by Washington, London or Brussels. Rather, it is a reality that should be recognized and met head-on by two interlinking action points: an understanding of the crisis of legitimacy faced by Iran's moderate leaders, and a policy of economic empowerment of Iranian youth.

First, Western policymakers should appreciate Iranian President Rouhani's precarious position of balancing his modernizing agenda with the wishes of Ayatollah Khamenei. As illustrated by previous Iranian President Mahmoud Ahmadinejad, (and the latter's ultimate political defeat), Rouhani is acutely aware of the perils of executing policy without the blessing of the supreme leader. And beyond the ayatollah, the president must contend with the Revolutionary Guards and the al-Quds Force. The 15,000-strong band of military leaders operate much like the ISI in Pakistan, with a sophisticated network and tentacles in all aspects of society, including the business world.

As Rouhani walks a tight rope between the ayatollah and the powerful network of the guards who consider themselves to be custodians of the revolution, the West must appreciate the president's crisis of legitimacy. If Rouhani modernizes or caves in too quickly, he will lose the support of Iran's clerics and hardliners.

Meanwhile, sanctions are taking a toll on a young population. Much like the etiolated Weimar Republic gave way to Hitler, this economic desperation and political lambasting may provoke a young member of the al-Quds to believe he is a hero -- and standing up for the honor of his people seemingly betrayed by his government -- may carry out a catastrophic act.

Yes, America's failed intervention in Iraq in 2003 created a power vacuum and enabled Tehran to construct a "Shia crescent" of alliances in the region. Yes, Iran has propped up Hezbollah , supported the government of Bashar al-Assad , stoked sectarian fires in fractured Iraq and even supported Hamas .

But there are extremists on both sides. While the Western press obsessively depicts conspiracy theories of Iranians who believe the U.S. is the "great Satan," these saber-rattlers are not dissimilar to the white-haired congressmen who perpetually remind their constituents of the Iranian hostage crisis. The constant footage on Fox News of students scaling the walls of the U.S. Embassy in Tehran -- an event that happened 35 years ago -- does not help matters. For the hawks on the Hill and their counterparts in Persia, both sides benefit from naming and shaming a perceived enemy of their electorate. Rouhani's failure to reach an agreement by the Nov. 24 deadline -- and the advent of Republican-dominated U.S. Congress -- will only bolster the hardline perspectives.

But rather than remain mired in the militant past, America and Europe should focus on Iran's greatest asset: its people. Iran has a population of 80 million , nearly half of which are under the age of 35 .

YOGA IN TEHRAN

Yoga classes are now popping up in the parks of Tehran. While this display of movement earns derision from traditional clerics, it illustrates that Iran's urbanites are modernizing, albeit not Westernizing. Entry requirements for Iran's universities are notoriously difficult, and academic institutions churn out a steady stream of engineers, rather than liberal arts students. This highly educated burgeoning middle class is a clear market opportunity, and should be the target audience of the West's supposed dtente.

So while America's trigger-happy sanction fans should brush up on Keynes' caveat of beating down the German population through reparations, Western negotiators should also be encouraged to translate Keynes' other works into Farsi. Consider Iran to be a trading partner, rather than a rogue state -- and in Keynes' words -- let capitalism be an "economic consequence" of future negotiations.