ranian economic cooperation and energy policy within the developing world serve as pillars of its foreign policy strategy, helping both its quest for regional hegemony in the greater Middle East and its position vis-à-vis the international community in the context of the ongoing nuclear crisis.

To increase its political capital and international standing, Tehran is not only investing in its most vital area of interest (the Middle East) and in its regional geopolitical environment -- which encompasses Central Asia and the Caspian Sea region -- but is also acting globally, extending its influence well beyond its traditional area of reach through political-economic alliances.

This trend seems to be confirmed by Iran's current diplomatic, political and economic global partnerships in Asia and Latin America, a powerful tool to consolidate old alliances and gain new partners.

China, Pakistan and India: Iran Looks East

On the Asian continent, the Iranian strategic realignment seems to rely on organizational and bilateral cooperation, extending beyond existing relations with other "rogue states" such as North Korea. On the contrary, Iran aims at reaching out to U.S. allies or "friendly" countries, such as India and Pakistan, as well as to emerging global powers, especially to China.

First, Iran is investing heavily in existing structures to facilitate continental cooperation and coordination, trying to capitalize on the recent diplomatic and political gains obtained in the Caspian Sea area (where Tehran succeeded in consolidating an embryonic cooperation and security organization with the neighboring littoral states). In the Asian context, this agenda is implemented by pushing for a greater role within the Shanghai Cooperation Organization (S.C.O.).

The S.C.O. is a permanent intergovernmental organization created in 2001 and composed of six permanent members (China, Kazakhstan, Russia, Kyrgyzstan, Tajikistan and Uzbekistan) and, since 2003, five states with observer status (Iran, India, Pakistan, Afghanistan and Mongolia).

Iran has been demanding to change its observer status and gain full permanent membership in the organization, as reiterated by First Vice President Parviz Davoudi in the course of the last November 6 meeting of the S.C.O. in Tashkent. On that occasion, he explained Iran's regional agenda by stating that "the new experience of Caspian Sea summit in Tehran indicated the cooperative morale among regional countries is very high," and emphasized that "the S.C.O. can emerge as an effective weight in the international arena and play an effective role in improving the new world order upon interests of the countries of the region."

Second, besides investing in pre-existing regional organizations, Iran is also increasing its bilateral relations by leveraging its energy resources to create powerful economic incentives to increase state-to-state cooperation. An important example of this trend is the recent finalization on November 10 of an agreement between Pakistan and Iran to proceed with the creation of the Iran-Pakistan-India (I.P.I.) pipeline.

The so-called "peace pipeline," a 2,600 kilometer (1,616 miles) and US$7.4 billion project, would bring gas from Iran's South Pars field to Pakistan and India. The two countries finally reached an agreement when Pakistan consented to Iran's demands to revise the gas pricing formula every three years and to implement a price-level mechanism tied to Japanese gas market prices.

Despite ongoing U.S. opposition, the two countries are aiming to formalize a multi-billion dollar gas export deal in November, and Pakistan has officially reiterated its determination to import Iranian gas, and to transfer it to India and China.

Furthermore, Pakistan-Iran energy cooperation will also be enhanced by a $60 million, 100 kilometer (62 miles) electric line that will allow Pakistan to import an extra 100 megawatts of electricity from Iran. Consolidating economic ties and increasing the mutual level of interdependence with Pakistan -- a regional power and a traditional U.S. ally -- has a high strategic value for Iran, which is also trying to achieve a similar agreement with India.

Previously, negotiations with India on the I.P.I. project failed due to both substantial disagreements over pricing formulas and transit fees, and because of continued U.S. pressure on India to abstain from purchasing Iranian gas -- in exchange for civil nuclear assistance. India's reluctance led Pakistan and Iran to agree on a preliminary bilateral agreement without involving India, under the understanding that any excess gas under the bilateral framework would instead be transferred to China.

It seems, however, that the economic potential of the project will override other existing considerations, and that India will indeed begin negotiations to join the I.P.I. project, which would again contribute to consolidating the network of Iran's economic-development partnerships.

From an Iranian perspective, the economic alliance with key regional players and emerging global powers such as Pakistan and India has a highly positive impact both in terms of breaking the "policy of isolation" adopted against Iran, and to gain additional leverage in impacting these countries' stand on Tehran's nuclear program.

Similarly, Iran is aiming at consolidating energy and cooperation ties with China. In this sense, in September 2007 Iran finalized oil and gas cooperation projects with China -- despite ongoing disagreements over price and revenue sharing between the two countries, which has until now prevented Chinese purchase of Iranian liquefied natural gas, and has stalled the development of the Yadavaran oil field by the China Petroleum and Chemical Corporation (Sinopec).

Disagreements aside, cooperation with China seems to be a strategic priority for Iran. For example, Iran, together with China and Malaysia, recently agreed on a joint development project of the Iranian Ressalat oil field. Moreover, China and Iran just signed a Memorandum of Understanding to store Iranian oil in Chinese strategic reserves, which would further enhance economic relations and interdependence between the two countries, and which would tie Iranian oil exports to Chinese strategic interests.

Additionally, the commercial ties between the two countries have been booming, as two-way trade relations hit $20 billion at the beginning of 2007, making China the top trade partner of the Islamic Republic.

The ongoing economic and energy relationship with China is an important asset for Iran, as it limits concretely its degree of economic and political isolation, diminishes its economic vulnerability to sanctions, and guarantees, together with Russia, an increasingly friendly power within the U.N. Security Council. In fact, although China has a vested interest in building its international credibility and in not openly defying the United States over the Iranian issue, at least in this phase the solid economic energy bond with Iran also creates an interest in maintaining a positive diplomatic and political relationship with Tehran and in rejecting harsh measures against the country.

Venezuela, Bolivia and Nicaragua: Iran in the Americas

During the Cold War era, Latin America -- with the exception of Cuba -- was considered under the sphere of influence of the United States. In the past 20 years, however, both global dynamics and great internal political change has partially reshaped the political configuration of Central and South America. Under this new framework and concurrent with the emergence of new Latin American governments that have distanced themselves from Washington, Iran has been able to establish important regional ties and partnerships, with the objective of improving its international credibility and relative power.

Iranian policies in Latin America have been driven by positive relations with Venezuela, with which it shares an "anti-American" platform and a revolutionary ethos. The two countries also share a series of significant trade, commerce, energy and development agreements.

Most recently, Iran and Venezuela announced the ratification of an agreement to create a $1 billion oil and gas venture company, the Venezuelan-Iranian Oil & Gas Co. (VENIROGC), a 50-50 partnership between Petroleos de Venezuela SA (P.D.V.S.A.) and Petropars. Also, in November 2007 the two countries agreed to set up a joint project with Syria and the Malaysian group al-Bukhari to build a 140,000 bpd refinery in the al-Farkalas region east of Homs, Syria.

The solid relationship with Venezuela is used by Tehran to facilitate the creation of new regional alliances. Iranian President Mahmoud Ahmadinejad explained this strategy by saying: "Iran and Venezuela can prepare grounds for the expansion of Iran's ties with independent Latin American countries by improving their cooperation in different fields."

With this objective, Iran also joined as an observer, at the invitation of Venezuela, the Bolivarian Alternative for the Americas (A.L.B.A.), which includes the main allies of Venezuela (Cuba, Nicaragua and Bolivia) and is conceived as an alternative to the U.S.-supported Free Trade Area of the Americas (F.T.A.A.).

Through this alliance, Iran has already begun to improve its regional standing and increase its local allies. For instance, it led to the establishment of energy and cooperation ties with Bolivia, with which Iran signed a significant energy cooperation deal in September 2007, while the Iranian Petropars is already assisting Venezuela's P.D.V.S.A. to assess the vast oil reserves in the Orinoco Belt region.

Moreover, the two countries agreed on a five-year industrial cooperation plan. Similarly, Iran has reached out to Nicaragua to initiate commercial and energy projects, including the financing of four hydroelectric plants.

Although the majority of the Latin American cooperation projects are not substantial in scope or magnitude, the geopolitical significance of Iran's policy of penetration in the Latin American continent should not be understated, as it contributes to its international standing and to the creation of a global counter-alliance that could impact the balance of power in the context of the nuclear crisis.

Conclusion: Iran as a Global Player

Iranian foreign policy seems to rely heavily on the country's energy resources as a platform to initiate economic cooperation globally, effectively creating a network of economic partners and ultimately political allies. Specifically, Iran has operated well beyond its most vital and proximate sphere of influence -- namely, the Middle East and the Caspian Sea region -- extending its diplomatic, political, and economic investments to Asia and Latin America.

Within these areas, Iran has focused its efforts to consolidate its ties with other "rogue states" (such as North Korea), and ideologically aligned partners (such as Venezuela), with the objective of increasing its core allies and international supporters.

The bulk of Iranian strategy, however, has not focused on its "ideological counterparts." On the contrary, Iranian foreign policy has been characterized by a high component of pragmatism, as the country has aimed at intensifying ties with emerging global powers, such as China, as well as to reach out to traditional U.S. allies such as Pakistan.

The potential consequences of this strategy have implications at the local, regional, and global levels.

Locally, Iran is aiming at increasing foreign investments and assistance to improve its under-developed oil and gas fields and its extraction-production export capacity. This would have a positive effect on its stagnant domestic economy, and it would contribute to minimize the financial losses deriving from reduced investments and partnerships from the West, an effect of the ongoing nuclear crisis. A substantial loss in foreign investments and exports could have a potentially devastating effect on the Iranian economy, which is highly dependant on both.

Regionally, the increased political capital and international standing can be leveraged by Iran in the greater Middle East, its most vital area of interest. In this sense, economic and political partnerships serve as power enhancers for the Islamic Republic, which needs to gain both internal stability and external credibility in order to assume a leadership role in the region.

Finally, Iran's current foreign policy also has a substantial impact globally, especially in the context of the dispute over its nuclear program. Concretely, Tehran is using its energy policy as a diplomatic tool to guarantee its integration within the international community. In fact, by enhancing economic ties and interdependence, Iran is also reducing its political isolation; by ensuring a wealth of economic partners, it is diminishing its vulnerability to sanctions.

Meanwhile, strategic partnerships with countries such as China contribute to rendering the concrete possibility of sanctions less likely, due to the increased joint interests of the two states. On the other hand, economic partnerships with countries such as India or Pakistan also benefit Iran's hand, as the enhanced ties ultimately influence the countries' positions on Tehran's nuclear program.

In sum, Iran is both improving its position at the negotiating table by reducing the cost of failed negotiations -- for example, by lowering the cost of sanctions -- by creating a viable best alternative to a negotiated agreement and by increasing its degree of international support. Iran will likely capitalize on these achievements obtained through "soft power" in its relations with the United States and the European Union, and perhaps this will allow Tehran to maintain its hard bargaining tactics.

Report Drafted By:
Benedetta Berti

The Power and Interest News Report (PINR) is an analysis-based publication that seeks to, as objectively as possible, provide insight into various conflicts, regions and points of interest around the globe. PINR approaches a subject based upon the powers and interests involved, leaving the moral judgments to the reader. This report may not be reproduced, reprinted or broadcast without the written permission of inquiries@pinr.com. All comments should be directed to content@pinr.com.