Molesworth & Featherston (Weekend) – April 8 2006

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Trade
The looming Iran threat

New Zealand will likely face adverse trade consequences if the Security Council dispute over Iran's pursuit of nuclear capability is not resolved.

The UN Security Council is demanding that Iran ends uranium enrichment work - Iran says it's for power generation; virtually everyone else suspects military intentions. Sanctions are being sought for non-compliance with IAEA demands. The worst risk for New Zealand is the prospect of the Security Council splitting, with the EU (which has led negotiations) and the US imposing their own measures while China and Russia refuse. We would probably have to choose sides.

Last year we sent $76.12 million of mainly butter and wool to Iran, according to MFAT. It’s not a huge sum but we send much more indirectly (that’s why we have kept an embassy there longer than in any other country in the region).

The greater risk would be if Iran responded spitefully with its only substantial trump: turning off the tap to its oil supplies. (We might call it ‘pique oil’). With our economy already somnolent and our current account bleak, we would take a hit.

Iran could hardly afford to lose its oil revenue and would try to keep selling to other nations (say, China and Russia for example). Then oil prices would be higher for sanctioning countries than for their competitors.

If the Security Council hangs together and imposes sanctions by all countries, our prospects are not much improved. We would tell Iran sanctions were beyond our control but we would lose our direct trade and prices in the region would fall as other exporters sought new markets.

The alternative is to hope Iran is allowed to go on its way. Surely a flagrant violation of global nuclear rules wouldn't be hoped for by anti-nuclear New Zealand? We would ignore a nuclear power-only capability if it complied with the IAEA’s rules, but that option doesn’t appear to be on the table.

Time is running out. Every diplomatic delay is allowing Iran the time it needs to complete research on nuclear weapons capability.

ROLLING POLL

A TV3-TNS poll joins the data this week, rocking the marginal advantage back Labour's way. But, you have to say the two big parties are tied.

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