While Washington is mulling over what to do next in order to weaken Iran economically, this summer the Islamic Republic has taught us a lesson in strategic maneuvering, taking major steps to bolster its economy and geopolitical posture by positioning itself as an indispensable energy supplier to hundreds of millions of people.

Last May, I described here how after 14 years of negotiations, Iran, which has the world’s second largest natural gas reserves, signed a deal to connect its economy with its eastern neighbor, Pakistan, via a 1,300-mile natural gas pipeline. Both Iran and Pakistan hope to extend the pipeline into India and perhaps even into China. This would not only give Iran a foothold in the Asian gas market and ensure that millions of Pakistanis, Indians and perhaps Chinese are beholden to Iran’s gas, but it would also provide Iran with an economic lifeline and the diplomatic protection energy-dependent economies typically grant their suppliers.

Not wasting any time, Iran is now implementing the second tenet of its pipeline strategy. In July, it announced that by the end of 2009 it will be connected with its northern neighbor, Turkmenistan, Central Asia’s largest gas producer, via a pipeline. Turkmenistan’s interest in pumping its gas to Iran stems from its desire to diversify its export market. Two-thirds of Turkmenistan’s gas flow to Russia, and the dependence on one major client allows Moscow to take advantage of its former republic. But why would energy-rich Iran want to import gas from its neighbor? The answer is the Nabucco pipeline.

For some years, a number of European governments and a consortium of energy companies have been lobbying for the construction of a pipeline from Central Asia via Turkey and the Balkan states to Austria, aimed to ease Europe’s dependence on Russian gas. Last July an intergovernmental accord on Nabucco was signed in Ankara. Scheduled to be completed by 2014 at a cost of over $11 billion, the 2,000-mile pipe is estimated to supply between 5-10 percent of the EU’s projected gas consumption in 2020.

The problem, though, is that it is far from certain where the gas for Nabucco would come from. To date, not a single gas-producing country has signed on to the project. The U.S. position toward Nabucco has been supportive, with the caveat that no Iranian gas should supply the pipeline. But this is an exercise in self-delusion. Even if the 10-15 billion cubic meters of gas per year projected to be tapped from Azeri fields were to become available, much gas would still be needed to meet the pipeline’s capacity of 31 billion cubic meters of gas a year. No doubt about it: Nabucco would have to access both Turkmen and Iranian reserves.

This inconvenient truth is well known to all those involved with the project. But in order to maintain U.S. support, European governments, Turkey—the main transit state—and the consortium of companies which have undertaken to build the pipeline have made sure to drop Iran’s name from any official document or statement related to Nabucco. Tehran, so it seems, does not believe in denial. Its President Mahmoud Ahmadinejad knows well that making Europe beholden to his gas is the best insurance for his regime and that Iran is an appealing alternative to Russia for those for whom Vladimir Putin is a far bigger menace than him. Once Nabucco is constructed, it will be only a matter of short time before Iranian gas will be requested. Hence, the pipeline to Turkmenistan will also make Iran a conduit for Turkmen gas.

In Iran’s effort to bring its gas into the heart of Europe, it has another project: a 1,100-mile pipeline currently being constructed from Iran’s South Pars gas field through Turkey and onward to Greece, Italy and other European countries. This pipeline is expected to deliver 20.4 billion cubic meters per year.

Whether Iran’s natural gas ends up powering turbines in New Delhi, Karachi or Vienna, one thing is certain: Iran will be richer and more geopolitically indispensable. As in the case of U.S. dependence on Saudi Arabia, China’s on Sudan or Germany’s on Russia, energy dependency is a major driver of foreign policy. Once these new gas conduits are established, it will be far more difficult for the United States to gather international support for policies aimed to reign in Iran.

All of these developments have received little attention in Washington, where sanctions on imported gasoline are the only game in town when it comes to crippling the mullah’s regime. Unlike the Bush administration, which was vocally opposed to the Iran-Pakistan-India pipeline, the Obama Administration has been mute on the issue. Instead, it has pressured India to give more consideration to global warming, essentially pushing India to shift from coal-powered electricity to cleaner burning Iranian natural gas. In doing so, the Obama administration has demonstrated that environmental stewardship enjoys higher priority than nuclear proliferation. At a volatile time when the Taliban is at Islamabad’s gate, the Obama administration has also refrained from pressuring Pakistan to reconsider its decision to provide Iran with an umbilical cord. As a result, should the worst happen and a Taliban-style regime take over Pakistan, the economies of the world’s most radical Shiite state and that of what could be the world’s most radical Sunni state would be connected to each other for decades to come like conjoined twins.

But all’s not lost. The Obama administration should actively promote alternative energy corridors which will prevent Iranian gas from reaching major markets while addressing Asia’s and Europe’s energy needs. One potential gas-pipeline project is the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline. The project can supply Pakistan and India as much gas at a lower construction cost, while providing the impoverished Afghan government with a steady revenue stream in the form of transit fees. Most important, TAPI would allow Turkmenistan to sell its gas to India, enriching two U.S. allies (Afghanistan and Pakistan) rather than selling the same gas to Europe, enriching a U.S. enemy (Iran).

Washington should therefore impress upon Islamabad, recipient of $1 billion-plus yearly of U.S. aid, to adopt TAPI rather than the Iran-Pakistan-India pipeline.

If the United States aims to stop Iran’s ambitions for regional hegemony, it is also in its interest to advance Europe’s and India’s use of renewable electricity and even coal rather than natural gas. And if those two markets insist on using gas, this gas should come in the form of liquefied natural gas (LNG) which can be imported from any gas exporter rather than in the form of Iranian gas.

The United States should cooperate with India on the development of a thorium nuclear fuel cycle rather than the commonly used highly problematic uranium-based nuclear fuel cycle. Thorium cannot be used as bomb material in any way; its fuel cycle is inherently incapable of causing a meltdown; its waste material consists mostly of 233-uranium, which can be recycled as fuel; its waste material is radiotoxic for tens of years, as opposed to the thousands of years with today’s standard radioactive waste; and it exists in greater abundance than uranium.

Only this month India announced that it has designed a new version of its advanced heavy water atomic reactor which will use thorium and low-enriched uranium (instead of highly enriched uranium) as fuel. At a time when the entire Middle East is going nuclear, this is a major opportunity for the United States to cooperate with India—after Australia, India and the United States have the second- and third-largest reserves of thorium—on advancing a safe pathway to globally-used peaceful nuclear power.

Finally, the United States should curb its enthusiasm toward Nabucco, take a more sober look at it and see the project for what it is: an economic lifeline for Iran. While this ambitious pipeline project may serve the interests of some European countries it would inevitably undermine those of the United States. Here the United States will find commonality of interests with Russia, the main opponent of Nabucco.

Nabucco was Verdi’s opera about the difficult plight of Jews under the ancient Persian Gulf ruler, Nebuchadnezzar. What an historical irony it would be if this eponymous pipeline ended up emboldening a modern regional ruler, one with much more sinister plans.

Saudi Prince Turki al-Faisal, former ambassador to the United States, has a suggestion for America: drop this nonsense called energy independence. In a strongly-worded essay in Foreign Policy magazine, which coincides with the 150th anniversary of Edwin Drake’s discovery of oil in the United States, Turki lambastes American politicians for invoking energy independence, which “is now as essential as baby-kissing,” accusing them of “demagoguery.” For him, energy independence is “political posturing at its worst—a concept that is unrealistic, misguided, and ultimately harmful to energy-producing and consuming countries alike.” “Like it or not,” Turki concludes, “the fates of the United States and Saudi Arabia are connected and will remain so for decades to come.” (He said much the same in this clip from last May; if you don’t see it, click here.)

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We’ve heard these lines before each time the United States made progress toward lessening its dependence on oil. In February, for example, Ali al-Naimi, the Saudi oil minister, warned of a “nightmare scenario” if consuming countries made progress in the development of alternative fuels. A decade ago, his predecessor, Sheikh Ahmed Zaki Yamani, called technology “the real enemy for OPEC.” This is understandable. After all, no pusher wants to see his client circling around a rehab clinic. For Saudi Arabia, a world where oil plays a marginal role is the nightmarish materialization of the Saudi saying, “My father rode a camel, I drive a car, my son flies a jet plane, his son will ride a camel.”

More troubling is the parade of prominent Americans who deride the notion of energy independence, viewing it as jingoistic, unsophisticated, naive and misleading. One cannot doubt the patriotism of former CIA director John Deutch, who said “energy independence is not a constructive idea,” or former secretary of defense and energy James Schlesinger, who called it a “forlorn hope,” or Pulitzer Prize winner Daniel Yergin who referred to it as “pipe dream,” or Andy Grove, former chairman of Intel, who called the concept “a faulty goal,” or even the members of the Council on Foreign Relations energy security task force who went so far as to accuse those promoting energy independence of “doing the nation a disservice.” But just like Prince Turki, all of those distinguished Americans misunderstand what energy independence really is. As a result, they underestimate our ability to get there.

Contrary to popular conception, energy independence does not mean self-sufficiency. It doesn’t mean not importing any oil or walling ourselves off from the global market. Energy independence is not a function of the amount of oil we consume or import. Rather, energy independence means turning oil from a strategic commodity second to none—one that underlies the global economy and determines the course of world affairs—into just another commodity to trade.

Oil’s strategic status stems from its virtual monopoly over fuel for transportation, which in turn underlies our entire way of life. Worldwide, 95 percent of our transportation energy is petroleum-based. Our cars, trucks planes and ships can run on nothing but petroleum. This is why the much-touted policies that aim to either increase oil supply through domestic drilling or decrease its use by boosting fuel efficiency, while helpful, are insufficient as they do not address the factor that gives oil its strategic status: the petroleum-only vehicle.

Energy independence thus requires breaking the virtual monopoly of oil over transportation fuels, and this can only be done via competition in the transportation fuel sector. (Think about our electricity sector, where a variety of competing energy sources—coal, natural gas, nuclear, solar and wind—can contribute to the grid.) If our cars and trucks were able to run on other fuels in addition to those refined from petroleum, Saudi Arabia’s oil would have to compete over the drivers’ wallet against utility companies, alternative liquid fuels producers and natural gas suppliers. But as long as our cars are gasoline-only, oil remains the only game in town, which is exactly what Saudi Arabia wants.

A few types of vehicle technologies allow us to break oil’s monopoly. The first, and most affordable, is the flex-fuel vehicle that can run on any combination of gasoline and alcohol (alcohol does not mean just ethanol, and ethanol does not mean just corn). It costs an extra $100 per new car to make a regular car flex-fuel. All it takes is a fuel sensor and a corrosion-resistant fuel line. An Open Fuel Standard ensuring that every new car sold in the United States be flex-fuel would not only give rise to an industry of alternative fuels and the associated refueling infrastructure, but it would also drive foreign automakers to add fuel flexibility to all of their models, effectively making it an international standard.

Electricity is another transportation fuel that can compete against oil. It is cheap, largely clean, domestically produced and can be made from multiple sources. Its refueling infrastructure is widely available. All that is needed for an electric car to connect to the grid is an extension cord. Most automakers have already committed to produce models of limited-range pure electric vehicles (EV) or plug-in hybrid electric vehicles (PHEV). The latter allow drivers to travel on stored electric power for the first 20-40 miles, after which the car keeps running on the liquid fuel in the tank, providing the standard 200-400 mile range. For the 50 percent of Americans who drive 25 miles per day or less, shifting from barrels to electrons would make the visit to the local gas station a rarity. If all of those Americans owned PHEVs, a population the size of New York, Florida and Pennsylvania combined would be off oil most days of the year. A PHEV would normally drive 100-150 miles per gallon of gasoline. If it is also made as flex-fuel and fueled with a blend of 80 percent alcohol and 20 percent gasoline, oil economy could reach over 500 miles per gallon of gasoline.

These technologies are either at or few years away from commercialization. If we only understood energy independence properly and took the relevant measures to open the transportation fuel market to competition, oil would be far less central to the world economy than it is today. If we ensure that new cars are platforms on which fuels can compete rather than perpetuate the petroleum standard, then Prince Turki’s descendants, on the 200th anniversary of Drake’s discovery, will be more likely to ride camels than private jets. No wonder he wants us to think otherwise.

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While the world’s eyes are focused on Iran and Pakistan, little attention has been paid to the two countries’ decision from last week to move ahead with their plans to connect their economies via a natural gas pipeline. What may seem like a standard energy project could have profound implications for the geopolitics of energy in the 21st century and for the future of south Asia, as well as for America’s ability to check Iran’s hegemony in the Persian Gulf.

For both Iran and Pakistan, the pipeline project would be highly beneficial. Iran sees in the pipeline not only an economic lifeline at a time when the United States and its European allies are trying to weaken it economically, but also an opportunity, should the pipeline be extended to India, to create an unbreakable long-term political and economic dependence of one billion Indian customers on its gas.

Pakistan, for its part, views the pipeline as the solution to its energy security challenge. Pakistan’s domestic gas production is falling and its import dependence is growing by leaps and bounds. By connecting itself with the world’s second-largest gas reserve, Pakistan would guarantee reliable supply for decades to come. If the pipeline were to be extended to India it could also be an instrument for stability in often tense Pakistan-India relations as well as a source of revenue for Islamabad through transit fees.

For the Obama administration, the signing of the pipeline deal is a diplomatic setback which could undermine its policy of weakening Iran economically. Unlike the Bush administration, which vocally opposed the project, the Obama team chose to remain mute, either in order to facilitate rapprochement with Tehran or due to its reluctance to burden U.S.-Pakistan relations at a volatile time when the Taliban is at Islamabad’s gate. Should the worst happen and a Taliban-style regime take over Pakistan, the economies of the world’s most radical Shiite state and that of what could be the world’s most radical Sunni state would be connected to each other for decades to come, like conjoined twins.

But all’s not lost for the United States. Years would elapse between the signing of the deal and the actual running of gas in the pipe. Baluchistan, where the pipeline is supposed to run, is one of Pakistan’s poorest and most restive provinces. In recent years it has been a battleground of militias belonging to Baluch tribes who hate the government of Tehran as much as they hate the one in Islamabad. Taliban or Al Qaeda members who have reportedly moved from the tribal border region to Baluchistan and who are known for their dislike of both governments may find common ground with the Baluch. One can rest assured that the Baluch Liberation Army (which for years has conducted sporadic attacks against water pipelines, power transmission lines and gas installations), and Al Qaeda members (who perfected the art of pipeline sabotage in Iraq) would not spare the Iran-Pakistan pipeline, causing delays in construction and perhaps even termination of the project altogether.

Open U.S. support for those opposition groups is unthinkable, as any collaboration—overt or covert—would severely cripple our relations with Islamabad. What the United States can do is minimize the pipeline’s damage to its strategic objectives by ensuring that it ends in Pakistan and does not extend further into India, as both Iran and Pakistan wish. To date, India has been hesitant to join the project and entrust its energy future in the hands of its unstable neighbors. The deterioration in the India-Pakistan relations following the terror attacks in Mumbai has effectively taken the project off the table. But this could easily change in the future as India’s energy crunch deepens: some 400 million Indians already suffer from energy poverty. This is what the Obama administration should preempt today, by increasing energy cooperation with India. Pressure on India to curtail its use of coal for power generation may help reduce carbon emissions, but it could force India to shift to cleaner burning natural gas and hence drive it right into the welcoming arms of Iran.

It is in the interest of the United States to help India increase its share of nuclear power and renewable energy while constructing liquefied natural gas terminals along the coasts of the Indian subcontinent to allow diversity of supply. Without active U.S. participation in the effort to alleviate India’s energy poverty, Iran could soon become to India what Russia is to Europe.

The recent Russian intervention in Georgia has made an American rapprochement with Iran highly desirable both for the United States and for the West as a whole. Israel has long opposed such a rapprochement, but this would also serve its interests too. Here’s why:

Europe has become increasingly dependent on Russia for natural gas supplies, and this dependence is only likely to increase. This would not be undesirable, except that Moscow has shown a proclivity for cutting back or halting gas shipments to states with which it has disagreements. To prevent Russia from acquiring leverage over Europe through greater control over its gas imports, the United States and many European governments have sought alternative gas supplies from Azerbaijan and Turkmenistan through pipeline routes bypassing Russia.

Iran has enormous natural gas reserves. Iran could also serve as an alternative pipeline route for Azeri and Turkmen gas for transshipment through Turkey to reach Europe. But Iranian-American hostility has resulted in Washington acting to block American and discourage other Western investment in this Iranian gas pipeline option in favor of a route through the South Caucasus.

Continued Azeri-Armenian hostility over Nagorno-Karabakh, though, prevents pipelines being constructed from Azerbaijan through Armenia to Turkey. This has left Georgia as the sole available route for a gas pipeline from Azerbaijan (and possibly Turkmenistan) to Turkey and Europe that bypasses both Russia and Iran. (An oil pipeline is already carrying Azeri oil through Georgia to the Black Sea, while another carries it through Georgia all the way through Turkey to the Mediterranean.)

But Russia’s successful intervention in Georgia casts doubt on whether Georgia can serve as an alternative to Russia as a pipeline route. The ease with which Russian forces took control of both Abkhazia and South Ossetia, as well as pushed into Georgia proper, demonstrated how readily Moscow could disrupt pipelines through Georgia. There is also the possibility that Moscow could wait until a gas pipeline through Georgia is built, and then take over both the country and all pipelines through it. This would not just frustrate Europe’s efforts to reduce dependence on Russia for gas, but actually increase it. Just the possibility that this could occur may prevent the proposed gas pipeline from Azerbaijan through Georgia to Turkey from being built.

How is Europe going to react to the problem of pipeline routes through Georgia being so vulnerable to disruption or takeover by Russia? Will Europe see dependence on Russia for its gas imports as inevitable and henceforward adjust its behavior so as not to antagonize Moscow? Or will Europe attempt to limits its dependence on Russia through seeking yet other suppliers and supply routes?

Past West European behavior suggests that Europe will do the latter. During the Cold War, when growing West European economies needed more gas but North Africa was seen as an unreliable supplier, Western Europe began to import gas from the Soviet Union. Further, it did this despite American objections at a time when Western Europe was dependent on the United States for protection against a possible Soviet attack.

Europe is now less dependent on the United States for security but increasingly dependent on the importation of gas. Europe, then, can be expected to do now what it did during the Cold War when it needed more gas and doubted the reliability of its existing suppliers: find alternative suppliers. Europe is now, in fact, attempting to increase its imports of gas via pipelines from North Africa as well as of liquefied natural gas (in both of which, by the way, Russia is trying to gain a stake).

Sooner or later, though, Europe is likely to seek to import gas from Iran, especially since: 1) the Iranians have already indicated their willingness to sell it to Europe; 2) Russia cannot interfere as easily in Iran as it can in Georgia; and 3) Iran can also serve as a transit route for gas from Azerbaijan and Turkmenistan.

As Western Europe’s behavior with regard to gas imports from the Soviet Union during the Cold War demonstrated, Europe is likely to buy gas from Iran despite opposition from America (and, of course, Israel). If Europe is determined to buy Iranian gas, then the United States will face two choices: either it can attempt to prevent Europe from doing so, or it can work with Europe by attempting to normalize Iranian-American relations.

Attempting to prevent Europe from buying Iranian gas is highly inadvisable since not only are such efforts likely to fail, but will only result in worsening European-American relations. Nor will doing this result in Iran moderating its behavior toward Israel, since it is doubtful that Europe is going to let Israeli opposition stand in the way of furthering its efforts to reduce dependence on Russia for gas. Further, an American effort to prevent Europe from buying Iranian gas would prevent the United States from being able to exploit the increasing differences between Russia and Iran that can be expected to emerge, especially if Tehran is willing to serve as a transit corridor for Azeri and Turkmen gas.

An Iranian-American rapprochement, by contrast, would help preserve European-American relations as well as allow the United States to benefit from the Russian-Iranian differences that would arise from this. But would Iran moderate its behavior toward Israel for the sake of rapprochement with the United States, especially if an Iranian-European rapprochement seems likely even if Iranian-American hostility remains?

There is reason to believe that it would. For while Europe can provide Iran with much needed cash, Europe is neither willing nor able to provide Iran with help on its security problems to the extent that America can. And Iran has some very serious security problems, including:

1. an increasingly active Sunni opposition inside Iran to the Shi’a government there;
2. the likelihood that a resurgent Taliban will renew its hostility toward Iran, which it actively pursued prior to 9/11;
3. the possible spillover into Iran from the renewed sectarian conflict in Iraq that may well result as the American presence there declines; and
4. the growing Russian hostility toward Iran that can be expected to result from Tehran competing with it as a gas exporter as well as pipeline route for Azeri and Turkmen gas.

Tehran has little incentive to change its behavior toward Israel if Iranian-American hostility continues at a time when American intervention in Iran appears highly unlikely. By contrast, the United States has a far better chance of moderating Iranian behavior toward Israel as a condition for providing Tehran with assistance against the very real threats Iran faces than if the United States remains hostile toward Iran.

Where America’s interests lie, then, should be clear: Opposing European gas purchases from Iran will worsen European-American relations, give Russia further opportunity to exploit European-American differences, and do nothing to moderate Iranian behavior toward Israel. An American rapprochement with Iran, by contrast, would promote European-American cooperation, assist Europe in avoiding over-dependence on Russian gas and Russian-controlled pipelines from Azerbaijan and Turkmenistan, and offer a better opportunity to moderate Iran’s behavior toward Israel.

The Saudis have been remarkably tight-lipped about the U.S. presidential election and about whom they favor among the candidates. Their reticence can be explained, in part, by their bewilderment at the choice.

They don’t know what to think of the real possibility that a young and charismatic black candidate might win. Senator Obama represents the joker in the deck, although they also have a sense that in terms of the pillars of U.S. policy in the Middle East (i.e., oil security and Israel’s security) little will change regardless of the election’s outcome. In other words, they feel the regime’s survival is assured because of the importance of oil.

Historically, the Saudis have favored Republicans for the following reasons: 1) a shared social and economic conservatism and a visceral anti-Communism; 2) the closer ties that Republicans are thought to have to the oil companies and the weapons industry, which represent the two domestic constituencies of, and therefore lobbyists for, the Saudi government in the U.S. political system; and 3) a highly personal (anti-institutional) form of political engagement in foreign affairs, especially in the Middle East. The Saudis like the current President Bush on a personal level, and he appears to relish the all-male gatherings in Saudi Arabia, as can be seen during his last trip to Riyadh in January.

The royal family’s objection to G.W. Bush’s policies have to do with what they perceive to be his impulsive and rash behavior as well as his high-stakes style in foreign policy. On the whole, the Saudis were not in favor of the invasion of Iraq because they were worried of the instability that this would create in the region. The Saudis are, if anything, conservative and don’t like to gamble their survival on military campaigns unless these are absolutely necessary, as in the 1991 Gulf war against the Iraqi invader of Kuwait. Instead, they prefer other means, which include financial inducements and fighting through proxies (e.g., Lebanon today).

Based on all the above, I would guess that the Saudis would prefer if McCain were to win. Furthermore, there are indications that they have a strong dislike to Senator Biden, primarily because of his public criticism of the Saudi royal family, its religious policies, and the very form of rule it represents. The Saudis have been relatively discreet about this animus towards Biden, and when it has surfaced, as in an editorial article by Jamal Khashogi in Al-Watan newspaper earlier this year, it has criticized Biden for his plan to divide Iraq into three parts. I believe the Saudis feel that they can proceed with business-as-usual with McCain but not with Biden, who is, paradoxically perhaps, more ideological when it comes to reforming Saudi Arabia’s regime.

Whatever the outcome of the U.S. election, the Saudis are sitting on a large pile of cash which is the result of record-high prices for oil and they can easily balance their budgets as long as the price remains roughly at or above the $50 mark per barrel. They are secure in the short term and confident that their people don’t want to see an Iraq-like scenario envelop the Kingdom.

The more imaginative among the Saudis think that they can reinvigorate their relationship and alliance with the United States on the basis of the excess capacity Saudi Arabia enjoys in terms of oil production. What this means is that the Saudis today have a significant power over the downward price of oil because they can increase supply of this product at will, and the demand is no longer there to suck up all the world’s production. Unlike the Saudis, the Iranians and the Russians cannot balance their budgets if the price is anywhere below the $70s to $90s per barrel range. The Saudis therefore have the means, but not necessarily the will, to punish the Iranians and Russians, and this is a fact that should not escape any new administration in the White House. The luck of the House of Saud never seems to run out.

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There is so much blame to go around in the wake of the financial crisis that there is no wonder OPEC’s name shows up high in the list of culprits. After all, soaring oil prices and loss of wealth in 2008 to the tune of $1.2-$1.9 billion each and every working day, depending on the price of crude, not only helped pop the U.S. mortgage bubble but have also helped create the economic conditions that brought the U.S. economy to its current dire straits.

I don’t like the oil cartel and have even been called “the most hated man in Riyadh.” My positions on OPEC and its methodical price manipulation and looting of the world’s poor are well documented. But alleging that OPEC by some grand design brought America to the abyss and then pushed her over the cliff or, worse, concocted a vast conspiracy to impoverish millions of middle-class Americans seems like one bridge too far, especially in light of the fact that OPEC countries themselves are among the biggest casualties of the crisis. Oil prices have already fallen to $88 from their record $147 in July.

Since the beginning of the crisis, the Saudi stock market, the largest in the Arab world, lost more than 17 percent of its value. Qatar lost 19 percent, and Dubai’s exchange shed a quarter of its value in just four days of trading. Due to their relative insulation, Iranian and Venezuelan stocks were almost unscathed by the meltdown, but make no mistake: Iran and Venezuela are likely to suffer greatly from the current downturn. The IMF recently determined that oil prices must remain at $90-$95 for Iran and Venezuela to be able to balance their books. If the price of oil falls to $75-$80 a barrel, Caracas and Tehran will have to cut government subsidies and shave government spending. At such price levels the Iranian economy alone will lose $50 billion a year, which amounts to a per capita loss of $700-$800.

Furthermore, sovereign wealth funds owned by Persian Gulf governments are heavily invested in crumbling financial institutions, and their losses are monumental. Only last July, Abu Dhabi Investment Council caused a stir when it bought the Chrysler building in New York City for $800 million. Considering the desolation of New York’s financial district and the slumping U.S. real estate sector, this no longer looks like such a great deal.

So if OPEC indeed has a grand economic warfare plan, as of this writing it proves to be a spectacular failure. No doubt most OPEC governments do not have America’s best interests in mind, but their correlation of interest does not imply causality. The problem with laying the blame for our economic calamity on OPEC is that it hides the plain truth that this crisis is about our greed, not theirs. Any attempt to masquerade this inconvenient truth will only obstruct our lesson-learning process and therefore undermine our road to recovery. As Pogo once said “we have met the enemy and he is us.”

The latest contribution to Middle East Papers is by Adam Garfinkle, editor of the journal The American Interest. Garfinkle (a particularly prolific contributor to MESH) argues that the conventional understanding of U.S. interests no longer accords with post-Cold War realities. The protection of oil, support for Israel, and preservation of U.S. hegemony need to be reconfigured in the absence of a great power rival. Yet the United States is stuck in Cold War-think. Garfinkle analyzes the changes, and proposes his own prioritized list of top four U.S. interests in the Middle East. Download here.

What’s behind the sudden burst of willingness on the part of the Saudis, who announced that they will increase oil output by 500,000 barrels per day in the coming months? After all, for many months they were quite unfazed by the economic havoc caused throughout the world by the rise in oil prices. Even two visits by President Bush, loaded with offers of sophisticated weapons, nuclear technology collaboration and other goodies, didn’t convince them to open the spigot. So what changed? And why are the Iranians so opposed to the Saudi newfound goodwill? “If Saudi Arabia takes a measure to unilaterally increase [oil] output, it is a wrong move,” complained Mohammad Ali Khatibi, Iran’s new representative to OPEC, repeating the mantra that “the oil market is saturated.”

Here is a theory: The dispute within OPEC between Saudi Arabia and Iran, the first and second largest exporting members, has, in part, to do with the upcoming presidential elections. Unlike the Iranians who would like the United States to withdraw from Iraq so they can turn the country into another Iranian satellite, the Saudis dread nothing more than a strengthened and emboldened Iran and prefer the United States to stick around for a while. Their concerns about the regional destabilization associated with a nuclear Iran, and hence their loss of points in the centuries-old Sunni-Shiite rivalry, is only part of the story. What keeps the Saudis awake at night is the challenge to their ability to control the oil fields in the Eastern Province where most of Saudi Arabia’s oppressed Shiites happen to live. Iranian hegemony in the Persian Gulf could inspire a Shiite intifada in the place where Saudi Arabia’s wealth is generated, constituting a real danger to the survival of the House of Saud.

From a Saudi perspective, an American president who plans to withdraw from Iraq while being conciliatory toward Iran is bad news. The Saudis, therefore, vote McCain; Iran goes for Obama.

Pouring oil into the global market five months prior to the elections could influence the tight race in a non-trivial way. The state of the U.S. economy and high energy prices are at the top of the voters’ agenda. Most oil contracts are traded three to six months prior to delivery. The Saudi announcement would therefore signal to speculators that more supply is on the way, driving prices down in the futures markets. This could have a calming effect on the economy in the coming months, which is likely to benefit McCain. The question now is whether Iran will do something in response to help Obama.

Comments are limited to MESH members and invitees.

Four months and thirty extra dollars a barrel later, President Bush is again in Saudi Arabia trying to persuade the Saudis to open the spigot and increase OPEC production. Last time the answer was a resounding no. Not even a gift of 900 precision-guided bombs helped convince the Saudis to show more oomph at the pump. The lesson for the Administration: speak softer and wave a bigger gift. This time the United States has agreed to help Saudi Arabia, the world’s largest oil exporter, develop “civilian” nuclear power.

Of course the Saudi interest in nuclear power has nothing to do with energy production but with Iran and the Sunnis’ fears of Iranian hegemony. Does President Bush really believe that helping the Saudis with nuclear technologies would cause Tehran to pull the plug on its nuclear program?

Saudi Oil Minister Ali al-Naimi insists that the oil market is well supplied, blaming the high prices on hedge funds and speculators. Considering the fact that OPEC production level is not much higher than its level thirty years ago and that Saudi output is lower than it was two years ago, putting the entire blame on speculators is utter nonsense.

The Saudis have always taken pride in their role as swing producers, claiming to own over 2mbd in spare capacity. But what good is this liquidity mechanism if they are not prepared to use it? When last month Nigeria’s production fell by 330,000 bpd, OPEC did not lift a finger to compensate for the loss. At what level will they provide us with liquidity? $200? $300?

If the Saudis are right and it’s all about the speculators, why not put this to test? This is exactly what Bush should have suggested: pour some oil into the market for a limited period of time and let’s measure the effect on prices so we can determine who is the culprit. With projected revenues of $400 billion this year, the Saudis can surely afford to embark on such an experiment and clear their name once and for all. But as I wrote here in January, we’d rather beg than blame.

The spectacle of an American president begging for oil every few months only to be rewarded with a slap in the face is getting a bit tedious. What’s next? Naming one of our aircraft carriers USS Ibn Saud?

I’m in Riyadh and the sense I get from the Saudis is that the Bush visit was a success for the President in two ways.

First, Bush was told that while the Gulf States’ leaderships are against an attack on Iran, preferring instead diplomatic and UN-based initiatives, they would not stand in the way of an attack. They might make some grumbling noises should an attack take place, but this would not amount to a principled position against the attack nor would it be followed up by more substantial anti-U.S. policies. More important, it seems that the United States could use the facilities afforded by the Gulf countries for this attack.

Second, Saudi Arabia has understood that the price of oil needs to be brought down through an increase in output, and the Kingdom has something like one half of all the oil rigs in the world trying to accomplish this. The fear here is that the high oil price will end up forcing the West to find alternatives to oil in the long term, and in the short term this might lead to a world recession, depressing the demand for this commodity. The experience of the 1990s, when prices were very low and Riyadh had serious budgetary difficulties, has not been forgotten.

The Saudis did push the president to do something substantial on the Israeli-Palestinian issue, and want their 2002 Beirut initiative to be taken seriously. The constant refrain in Riyadh is that the Palestinian situation is a source of embarrassment for the regime with its own public, and is a source of tension in its relations with the United States. Riyadh wishes to see the Palestinian problem resolved so that the Kingdom can re-invent its relationship with the United States on the basis of containing Iran and, more generally, act as the bulwark for stability in the Gulf region.