Iran's Ahmadinejad: crazy or crazy like a fox?

• Author: Smick, David
• Position: Nuclear weapons usage

Those of us trying to make sense of the Middle East remain perplexed by the recent rise of Iranian President Mahmoud Ahmadinejad, the lunatic-like leader with decidedly sociopathic tendencies. Not only will Iran soon develop a deliverable nuclear device, he promises, but the first hit will be Israel. These are the rantings of a crazy man. The only question is whether President Ahmadinejad is crazy like a fox.

None of this on the surface makes much sense. If the goal is to go nuclear, why not quietly offer a benign explanation? How about, "All we want, along with our nuclear-armed neighbors Israel and Pakistan, is a regional policy of 'mutually assured destruction' to maintain the peace." Bogged down in Iraq, Washington would have had a hard time convincing the Europeans to stand tough. Instead, Ahmadinejad appears to be actually begging the Israelis (or Americans) to launch a preemptive strike and/or the United Nations to impose sanctions.

What is perplexing is that the Iranians domestically are hardly in a position to withstand either a) a cut-off of their oil exports, or b) economic sanctions by the international community in the event, as seems likely, this crisis escalates. Consider the numbers. Today, 30 percent of Iranian gasoline has to be imported. Of Iran's GDP, a whopping 54 percent comes from oil. Iran's budget enjoys only two revenue sources: 1) borrowing of about $8 billion, and 2) oil revenues of $58 billion. Translation: A cutoff of Iranian oil would be catastrophic--for Iran.

Moreover, curtailment of the supply of Iranian oil to the global market would not necessarily lead to a global oil shortage or economic catastrophe. The world enjoys enough excess supply plus spare capacity to relatively easily withstand a loss of Iranian oil exports. Indeed, excess supply plus spare capacity amounts to 5.7 billion barrels per day, more than double Iran's oil exports. Plus, an Iranian oil cutoff has probably already been largely discounted by the markets. Note too that the Iranian oil industry itself, operating far above capacity maintenance levels because of a lack of investment, risks serious deterioration of its infrastructure in the event of a cut-off.

So why would the Iranian leadership allow Ahmadinejad to place in jeopardy the country's economic future? A growing theory is that the Iranians, sensing the al Qaeda movement is increasingly bottled up, have decided to try to take over the helm of the ship. They are setting in motion...