COALITION OF THE WILLING, AN ECONOMIC ONE

'An Economic Coalition of the Willing'
by Ilan Berman

By now, it has become all too clear that when it comes to the Iranian nuclear crisis, the ball is squarely in Washington's court.

Aug. 31 has come and gone, and with it the international deadline for Tehran to halt its uranium enrichment. Iran's ayatollahs, however, have shown no signs of curbing their atomic ambitions. "The Iranian nation will not accept for one moment any bullying, invasion and violation of its rights," Iran's radical president, Mahmoud Ahmadinejad, has defiantly told his supporters. In response, the Bush administration has signaled its commitment to seeking punitive measures against the Islamic Republic, sanctions chief among them. In practice, however Washington has not yet seriously tackled the economic dimension of the current crisis - or explored the financial levers by which Iran can be confronted.

This amounts to a critical oversight, because Iran's economy is deeply susceptible to foreign pressure on at least three fronts. All that is necessary is the proper political will to exploit these weaknesses.

Iran's first vulnerability is its dependence on foreign investment.

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Iran's second weakness stems from its centralized economic hierarchy. For all of its lip service to fiscal reforms and grass-roots properity, the vast majority of the regime's wealth remains concentrated in the hands of a very small number of people.

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Far and away the biggest chink in Iran's economic armor, however, is its reliance on foreign gasoline. Today, Iran's antiquated, socialist economy - where a gallon of gas still sells for roughbly 40 cents - has become a major Achilles' heel. Iran now consumes over 64.5 million liters of gasoline a day, with close to 40% coming from foreign sources (among them India, France, Turkey and the Gulf states). This energy habit is expensive; Iran will spend over $3 billion - and perhaps as much as $8 billion - on gasoline imports this year alone. And, with just a 45-day domestic supply available, steady supplies from abroad are vital to the continued functioning of the regime. All of which suggests that a comprehensive gas embargo on the Islamic Republic could quickly wreak havoc on Iran's industrial sectors - and, potentially, galvanize serious social unrest on the Iranian street as well.

But the West's window of oppurtunity to implement such measures is rapibly closing. Already, Iran has begun to make serious economic countermoves, transferring financial assets from Europe to China and Southeast Asia and initiating a large-scale privatization of government funds. Most significant of all, the Iranian regime recently approved a new fiscal budget that calls for a halt to gasoline imports and the institution of gasoline rationing beginning this fall. The aim of these efforts is crystal clear; to proactively limit potential economic leverage over its behavior.

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In the best case, serious U.N. Security Council action will still take weeks or months to materialize, buying Iran's ayatollahs valuable time to forge ahead with their nuclear program. What's more, if and when they do emerge, U.N. sanctions are guaranteed to be limited in scope, so as not to offend two of Iran's chief strategic partners, Russia and China.

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By hitching itself to this flawed policy, the Bush administration is courting disaster. Instead of relying on the United Nations, the White House should be thinking creatively about another sort of grouping - an economic "coalition of the willing" capable of implementing the specific financial levers that are most likely to alter Iranian behavior, and of doing so without further delay.

The stakes could not be any higher. If the U.S. and its international allies fail to promptly use their existing economic leverage to curb Iran's nuclear ambitions, they will soon thave just two choices: to acquiesce to the emergence of an atomic Iran, or to use military force to prevent it from happening.

Excerpted from the print edition of the Wall Street Journal, September 26, 2006.