Why is Iran risking so much in its quest for nuclear power? Iran’s government claims nuclear power is necessary given the domestic energy situation. The Bush administration declares this petroleum-rich state cannot possibly need nuclear power to meet domestic energy demands, and, thus, Iran’s push for nuclear power must have more nefarious ends. Is Iran just another terrorist state with nuclear dreams or could they possibly be providing a tangible explanation for their nuclear ambitions?

Roger Stern of Johns Hopkins, a FREE lecturer, gives credence to Iran’s claim in a recent issue of the Proceeding of the National Academies of Sciences (http://www.pnas.org/cgi/reprint/0603903104v1). Stern believes the Iranian regime may actually need nuclear power as badly as it claims. He examines Iran’s oil export crisis, an important factor in Iran’s energy woes. Iran has so mismanaged it’s domestic oil industry that it’s oil exports may fall to zero by 2015. This implies the regime is far more vulnerable than it appears.

Iran derives 90+ percent of its revenues from exports of petroleum and petroleum based products. Rugs and pistachios are the other major exports. Oil revenues underwrite Iran’s mischief in the region and keep the regime in power. Iran buys domestic tranquility by “putting oil revenues on every table.” But this system is threatened if oil revenues fall. The Islamic welfare state built on the failed Soviet model is at serious risk.

The National Iranian Oil Company suffers from years of neglect and corruption. Oil production is declining and Iran has failed to meet its OPEC production quota. This is not a “running out of oil” problem, but rather one of institutional failure. Amazingly, Iran can’t even meet its domestic demand for highly subsidized gasoline.

Stern’s research implies Iran’s looming export crisis gives the U.S. an option of fostering regime collapse rather than using military force. The U.S., EU, and Japan together account for slightly over half of the world’s oil consumption. If these nations adopt fuel-efficient technologies and stiff conservation measures (e.g., a U.S. fuel tax of $3 per gallon, gradually rising to $6), the demand for oil will dramatically fall, and so will the price of crude oil. OPEC would face a loss of revenues, which many member states use to fund terrorism and brutalize their neighbors.

OPEC would defend oil price by imposing production quotas. However, as history shows, OPEC has never succeeded at this task. This is because members face enormous pressures to grab revenue. Hence, they cheat.

Consider Saudi Arabia from 1981-85. As oil price fell, the Saudis cut production to defend price. Other cartel states cheated and maximized revenue. In an effort to defend price, the Saudis cut production ever further. Finally, with their oil revenues almost at zero and nearly broke, they dramatically increased production. This recaptured lost market share, but drove down price further—ultimately to $9 a barrel in 1987.

If Stern’s proposal were successful, Iran’s oil revenues would collapse. For unlike Saudi Arabia, Iran’s oil industry simply can’t increase production to compensate for falling price. A massive infusion of Western technology and human capital is needed.

However, Stern’s logic faces vexing realities. The developed world has become dependent on Persian Gulf oil for a simple reason: This oil has been cheap and available. Hence, it keeps other energy off the market. This is the root of the problem. If prices drop, high-cost producers in politically stable countries (e.g., America and Canada) will be driven from the market. The result is greater dependence on nations who wish us ill.

If we are going to reduce demand, oil prices must rise and remain high for a sustained period, i.e., years. As Thomas Friedman described in last week’s New York Times, this reality underlies Governor Schweitzer’s call for a permanent floor price for U.S. oil of $40 a barrel.

Will politicians take the long view and risk election to maintain such high prices? Stern’s policies will only work if an overwhelming majority of politicians, religious leaders, public intellectuals, and major editorial pages unite in a call for national sacrifice. We saw in WWII that this kind of social mobilization and sacrifice is indeed possible. We’ll see if today’s politicians and leaders have the required character.