Iran's Deputy Oil Minister Hamdollah Mohammadnejad has candidly acknowledged the impact that the various U.S.-led restrictions have had on Iran's energy industry. Speaking at the opening ceremony of the first National Stakeholder System Development Congress in Oil Industry, which opened in Tehran on Nov. 22, Mohammadnejad said Iran's oil industry needs at least $145 billion in investment, or $14 per annum, over the next decade to become the "region's first choice for value-added petrochemicals, OPEC's second producer and world's third gas producer."

The economic wall of isolation around Iran imposed by U.S. sanctions may be about to be breached by one of Washington's closest NATO allies, Turkey. On Nov. 17 Turkish Energy Minister Hilmi Guler stated that Turkey may invest up to $12 billion in the development of phases 22, 23 and 24 of Iran's South Pars Persian Gulf offshore gas field and construct a natural gas pipeline from the Iranian port of Assalouyeh to the Turkish border after signing a Memorandum of Understanding agreement in Tehran with Iranian Oil Minister Gholamhossein Nozari. As Washington's ILSA sanctions theoretically come into operation against any nation or company investing more than $20 million in Iran's hydrocarbons industry, the stage seems set for a showdown with a vital Middle Eastern ally that Washington can ill afford to lose, if it chooses to act under the legislation. Turkey is certainly disinclined to back down, as Guler cited the agreement as vital, adding, "We will implement every bilaterally inked agreement."

For its part, Washington is persisting with its pipeline policy of isolating both Iran and Russia. In Baku, Azerbaijan, for an energy summit last week, U.S. Secretary of Energy Samuel Bodman compared the summit's significance with Azerbaijan's 1994 "Contract of the Century" signed for developing the nation's Caspian oil reserves.

But even Washington's stalwart ally Azerbaijan is casting its eye toward its eastern neighbor. In the aftermath of the August military confrontation between Russia and Georgia, as all its Western export options were closed, Baku commenced its first oil shipments to Iran, and earlier this week Azerbaijan's ambassador to Iran, Abbassali Hassanov, stated in Tehran that Azeri-Iranian bilateral annual trade, worth $147 million a decade ago, now stands at $800 million and shortly could rise to $1 billion.

Kazakhstan is also following half of Washington's dictum by diversifying its export routes away from Russia, eyeing the feasibility of expanding its oil swaps with Iran, but is moving cautiously lest it antagonize Washington. Iran is eagerly seeking to expand the trade by upgrading its port facilities at Neka and Amirabad and proposing to build a trans-Iranian pipeline linking Neka to Iran's Arabian Sea port at Jask.

In short, the former Soviet republics now rimming the Caspian are eyeing Iran as a transit corridor to lessen their dependency on Russian routes, but if Washington looks with disfavor on exports southward through Iran and the threat of war westward in the Caucasus diminishes the attractiveness of that exit route, then all that is left is eastward -- toward China.

If, on the other hand, aside from the economic pressure, Washington chooses to increase its military pressure on Iran, Tehran has stated that it has the capability to interfere with Western oil shipments through the Strait of Hormuz at the entrance to the Persian Gulf. Earlier this month Iranian Revolutionary Guard Corps Brig. Gen. Mas'ud Jazayeri commented on a NATO official's remarks on Iran's inability to close the Strait of Hormuz, saying, "We try not to close the Strait of Hormuz or any other waterway in the first place. However, if a situation arises in which the enemy violates (Iranian territory), the Islamic Republic of Iran is easily capable of closing the Strait of Hormuz." Amplifying Jazayeri's remarks, IRGC navy chief Morteza Saffari said, "The naval combat fleet can increase three-fold in crisis times."

Iran's Navy Day is Nov. 27, when two Iranian missile boats, Kalat and Darafsh, along with an indigenously built Qadir-class light submarine, will join Iran's navy. Depending on future decisions in Washington, a year from now the IRGC navy either could be celebrating routine maritime patrols in the Persian Gulf and assisting Western warships in suppressing piracy off Somalia or facing a new generation of shaheeds (martyrs). It is not insignificant that on Nov. 25 Rear Adm. Habibollah Sayyari, commander of the army's naval forces, addressed the first gathering on "navy martyrs" in Bushehr, telling his audience that Iran, even though it has 2,000 miles of maritime frontiers in the north and south, has successfully safeguarded the country's territorial integrity. As Bushehr is the location of Iran's first civilian nuclear reactor, if cooler heads don't prevail in Washington, then next year Sayyari may well be addressing a much larger gathering. There is little doubt that Tehran, while belligerently defending its sovereignty, prefers commerce over conflict.

The question is whether anyone in Washington is prepared to listen, or whether the new administration would prefer to continue the Bush administration's tried and true policy of dictating to Iran and isolating it. Loosening the sanctions regimen, which would allow Iran to seek its badly needed foreign investment, could well pay immense dividends in negotiations over Iran's contentious nuclear power program. Obama's foreign policy advisory team includes Zbigniew Brzezinski, President Jimmy Carter's national security adviser, who, despite losing his job over the 1979 Iranian Embassy hostage crisis, has called for talks with Iran. If the new administration continues its predecessor's policy of isolating Russia's growing dominance of European energy markets by fostering the development of alternative pipeline routes and energy sources, then it could do worse than listen.

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