Iran: The New Red Alert In The Persian Gulf

Ominous signals emanating from the Persian Gulf have Iran back on the radar screens of policymakers from Riyadh to Washington. Tehran has embarked upon a massive arms buildup, while directly challenging its Arab neighbors over territorial disputes and opec oil policy. Such moves have swept away any goodwill won by Iranian President Hashemi Rafsanjani's efforts last year in winning the release of Western hostages in Lebanon. Economic woes and criticism from Islamic radicals seem to be diverting Rafsanjani from his moderate inclinations.

Confronting Iran's new assertiveness in the gulf will be a considerable challenge for the next U.S. Administration. Even moderate Iranians insist their country should call the shots when it comes to security in the gulf--not the 24,000 U.S. troops still hanging around from Desert Storm. Washington's recent clinching of huge arms deals with Kuwait and Saudi Arabia while trying to stop sales to Iran by Russia and China has only increased Iranian antipathy of the U.S.

SABER RATTLING. With Iran's military machine devastated by its 1980-88 war with Iraq, Rafsanjani has launched a $10 billion arms buildup. Tehran has ordered everything from advanced Russian MiG-29 fighters and submarines to Scud-C missiles from North Korea. Pentagon analysts, however, see more than just inventory replenishment at work. Says Defense Secretary Richard B. Cheney: "Their goal is to dominate the gulf."

Iran is starting to throw around its heft in other ways, as well. In a move that has sent jitters throughout the Arab sheikdoms, Iranian troops have been getting tough on three small but strategically located gulf islands that both Iran and the United Arab Emirates claim. Oil industry sources say the saber rattling is also intended to pressure Saudi Arabia to cut oil production in order to achieve higher oil prices.

Rafsanjani desperately needs to boost revenues. He has run up foreign debt to some $15 billion since Ayatollah Ruhollah Khomeini's death in 1989--quite a burden for an $80 billion economy. Unemployment and inflation are running at a 20%-plus clip. Recent visitors to Tehran report growing doubts about the Islamic regime's ability to deal with economic problems. There is increasing worry among Iran watchers that the regime could be tempted into Saddam-style adventures as a way out of this cul-de-sac. "It all adds up to an explosive situation," says James A. Placke, of Cambridge Energy Research Associates.

CLOSER LINKS? Some say a way to help defuse such potential adventurism might be through stronger economic ties. A number of U.S. companies are clamoring for a shot at Iran's 60 million consumers, the gulf's largest market. "Iran is talking to companies worldwide about bringing in capital and technology," says Mike R. Bowlin, executive vice-president of Arco. Indeed, Iran has quietly approached Arco and other U.S. oil companies and has entered formal talks with Royal Dutch/Shell Oil and France's Total about big-ticket energy development work.

But so far, the Bush Administration seems firmly opposed to trying to influence Iran with economic carrots. It maintains a virtual trade embargo against Tehran and recently blocked Boeing Co.'s proposed $900 million sale of commercial airliners to Iran Air. With tensions rising, U.S.-Iranian relations seem destined to take a nasty turn in the months ahead.