On February 9, 2003, Iranian President Mohammad Khatami announced Iran’s program for producing enriched uranium, the fuel for nuclear reactors and nuclear power plants (NPPs). Since then, experts and inspectors of the International Atomic Energy Agency (IAEA) have visited Iran on a regular basis to inspect its program and facilities. The administration of US President George W. Bush argues that the primary purpose of Iran’s program is to develop nuclear weapons, and the European Union, Russia, and Japan, who have extensive commercial relations with Iran, are all pressing Iran to reveal the details of its program.

This article analyzes Iran’s program for generating electricity using NPPs and whether such a program is justified economically. The US argument against Iran’s nuclear program is that, given its vast oil and gas reserves, Iran does not need nuclear energy. When Shah Mohammed Reza started Iran’s nuclear energy program in 1974, NPPs could not be justified economically: Iran’s population was less than half of its present 70 million, oil production was about 5.8 million barrels per day (bpd), far more than the present daily production of 3.9 million bpd, domestic energy consumption was less than a quarter of consumption today, natural gas was being burned to be eliminated, and unlike now, Iran’s oil reservoirs were not in decline. This begs the question: since the United States strongly pushed the Shah to build NPPs in the 1970s, why does it now believe that Iran does not need NPPs, which, as this article shows, can be economically justified?

Iran’s foray into nuclear technology gathered steam in the mid-1960s under the auspices of the United States within the framework of bilateral agreements between the two countries. Up until 1974, the United States had turned down the Shah’s suggestion for a Joint Economic Commission (JEC) that would regulate and expand Iran’s commercial relations with the United States. Yet, after the massive increase in oil prices during 1973 and 1974, the United States suddenly became very interested in establishing a JEC with Iran. In a secret letter dated April 13, 1974, to the Shah’s confidante Amir Assadollah Alam, US Ambassador to Iran Richard Helms wrote, “We have noted the priority that His Imperial Majesty gives to developing alternative means of energy production through nuclear power. This is clearly an area in which we might most usefully begin on a specific program of cooperation and collaboration...” In two National Security Decision Memoranda dated April 22, 1975, and April 20, 1976, US President Gerald Ford authorized selling Iran uranium enrichment and reprocessing facilities in return for Iran buying eight nuclear reactors from the United States. Iran and the United States then signed an agreement worth approximately US$15 billion, by which the United States agreed to build eight NPPs in Iran that would have had a total capacity of 8,000 megawatts (MW). The formal announcement of the agreement was made in October 1977 by Sydney Sober, a representative of the US State Department, in his address to the symposium, “The US and Iran: An Increasing Partnership.”
Energy Consumption and Resources
Iran’s current population is about 70 million, compared with 30 million when the Shah started Iran’s program for building NPPs in 1974, and is estimated to reach 100 million by 2025. Since 1978, Iran’s energy consumption has increased 5.5 percent per year on average, while its energy production has barely kept up with its consumption. The demand for electric power is growing at an annual rate of eight percent. Thus, Iran projects needing 70,000 MW of electricity by 2021, compared to the current production of 31,000 MW. These electricity needs would require 112 to 140 million barrels of oil per year because 18 percent of the electricity will be from burning oil. If this trend continues and crude oil is not replaced by another energy source, and if Iran does not increase oil production significantly, it will become a net importer of oil over next decade, a huge catastrophe for a nation that obtains 80 percent of its total export earnings and 45 percent of its total annual budget from exporting oil. Iran also possesses about 942 trillion cubic feet in natural gas reserves—15.2 percent of the world’s proven reserves—second only to Russia. As a result, natural gas has increasingly become a main source of energy in Iran (see “Nuclear Inclination”).
The Case for Nuclear Energy
The main argument of the critics of Iran’s nuclear energy program is that, due to its vast oil and gas reserves, it does not need NPPs. Yet Great Britain, Canada, and Russia, all oil exporters, rely on NPPs for a significant portion of their electricity needs. Russia’s gas reserves represent about a quarter of the world’s known reserves, and Canada exports 1.5 million bpd of oil to the United States every day; both continue to build NPPs. Between 1974, when Iran signed its first agreement for building NPPs, and 2000, use of NPPs for generating electricity in the world has increased by a factor of 12. Figure “Nuclear Inclination” shows Iran’s current sources of electricity production and discusses the trade-off that it has in energy generation, consumption, and exports. By 2021, 10 percent of Iran’s electricity is to be supplied by NPPs, 20 percent by hydroelectric, 5 percent by other sources, and the remaining 60 percent by natural gas, hence eliminating Iran’s reliance on oil for generating electricity, generating significant additional income by exporting the oil and preventing environmental pollution. Currently, 19 percent of the world’s electricity is generated by NPPs, with their share reaching 27 percent by 2021. In addition, using NPPs and diverting some of the natural gas currently used for generating electricity to other uses have many externalities for Iran—benefits that arise when decisions of some economic agents affect the interests of other economic agents. Iran’s nuclear energy program will result in the development and nurturing of new and unprecedented capabilities for building technological infrastructures, as well as the cross-fertilization and diversion of nuclear-related know-how, research, and development into other industries and branches of science, such as medicine and agriculture. The added value and versatility of nuclear technology-related training will be substantial in creating a new cadre of technocrats and scientists in Iran. The added value gained by producing petrochemical products using natural gas with the jobs and industrial base that it creates, and the foreign currency income it generates, far surpass what Iran would gain by merely burning gas to generate electricity (the world’s US$500 billion petrochemical industry has been developed based on such logics).

IAEA Director General Mohamed El Baradei remarked, “The more we look to the future, the more we can expect countries to be considering the potential benefits that expanding nuclear power has to offer for the global environment and for economic growth....” If one is to obtain a true estimate of the cost of using oil (and even natural gas) as a source of energy, one must not only take into account the export income that Iran can earn by exporting the oil that it currently burns to generate 18 percent of its electricity (see Figure “Nuclear Inclination”), but also the huge toll of oil consumption on the environment and the medical care for people suffering from diseases caused by oil pollution. Iran is beset by severe environmental problems caused by oil consumption that are reaching catastrophic scales. According to Iran’s Ministry of Health and various environmental groups, long-term effects of the polluted air and soil are responsible for causing 17,000 deaths and severe problems for people with asthma, heart, and skin conditions every year in Tehran alone. The cost of medical care for such illnesses is extremely high. Polluted air also severely damages soil and groundwater resources by contaminating the rain water. At the same time, Iran’s industrial base, which uses oil and gas for energy, generates wastes that contaminate a large number of rivers and coastal waters and threaten drinking water supplies. Iran is close to experiencing a chronic shortage of clean water, a situation seen by many as a precondition for future wars in the Middle East. Supplying energy to the world releases six billion metric tons of carbon into the atmosphere every year. Since 1980, carbon emission in Iran has risen by 240 percent, from 33.1 million metric tons emitted in 1980 to more than 85 million metric tons today. A recent study by John Deutch and Ernest Moniz of the Massachusetts Institute of Technology also argued that, even in the United States, subject to some reasonable technological advancements and a modest tax on carbon emission, the cost of generating electricity by NPPs will become competitive with that of gas power plants. For Iran, this is already the case.

We must also recognize that NPPs have high initial capital costs (which are, however, justified based on their externalities) and must maintain a very high level of safety to minimize the chances of nuclear accidents such as those at Three-Mile Island and Chernobyl. The fact is that the safety of NPPs is a recurring problem. Even Japan has had many nuclear accidents. The problem of safely storing the nuclear wastes produced by NPPs is also very important. If Iran keeps its full nuclear fuel cycle, then its vast central desert can be a suitable place for burying the waste deep underground, similar to the planned Yucca Mountain site in Nevada. If Iran is forced to import fuel for NPPs, then the supplier country will also presumably take back the waste.
International Obligations
Iran signed the Statute of IAEA in 1958, committing itself to peaceful use of nuclear energy and non-proliferation of nuclear weapons, the Comprehensive Test Ban Treaty in 1963, the Nuclear Non-Proliferation Treaty (NPT) in 1967, the Comprehensive Safeguards Agreement with the IAEA in 1973, the Subsidiary Arrangements in 1974 to facilitate the inspection of nuclear activities by IAEA safeguards, and the Additional Protocol of NPT in December 2003. Most, if not all, of these treaties have not been signed by India, Israel, and Pakistan—three countries with nuclear weapons. Despite Iran’s commitments, the United States has transformed Iran’s nuclear energy program into one of the most complex international issues. Iran’s program has important implications for the Middle East and the world. We must first recognize that, so far, the IAEA has not found Iran in violation of any provisions of its international commitments. The NPT allows Iran to legally build any nuclear facility, including one for uranium enrichment, so long as it is intended for peaceful purposes and Iran notifies the IAEA 180 days before nuclear materials are introduced into such facilities. Building the enrichment facility in Natanz without declaring it in advance to the IAEA is not in violation of any provisions of Iran’s nuclear commitments. Iran’s most serious alleged NPT violation was the traces of the highly-enriched uranium (HEU) that were found in some of the facilities. However, the IAEA now believes that the source of the HEU is the contaminated equipment that Iran had imported.

Therefore, as El Baradei acknowledged on September 14, 2004, the reason for the US furor over Iran’s uranium enrichment program is purely political, since Israel fears an Iran armed with nuclear weapons. Even if Iran does make a nuclear bomb, it would be for defensive purposes, but there is some merit to the fears. The reasons are the dynamics of Iran’s domestic politics and its many decision-making bodies, the distribution of power between the unelected and elected power centers, and the lack of complete transparency. One must also keep in mind that extreme elements in Iran’s military would like nothing more than a limited military confrontation with the United States and Israel to use it as an excuse to suppress Iran’s democratic movement and its leaders. After the 1995 agreement between Iran and Russia for completing the Bushehr NPP, the administration of US President Bill Clinton claimed that the plutonium from Bushehr reactor’s nuclear waste could be used by Iran to make nuclear weapons. Iran and Russia negotiated an agreement to return the nuclear wastes to Russia. Then, the United States began claiming that the reactor will train Iranian scientists for making nuclear weapons. There is not much merit to this charge. Recall that Israel bombed and destroyed Iraq’s only nuclear reactor under construction at Osirak in 1981, yet Iraq was well on its way to making a nuclear bomb when its nuclear weapon program was discovered after the 1991 Gulf War, and that in the 1980s South Africa produced 16 nuclear bombs without having a single reactor. The recent experience with Iraq showed that the IAEA did an excellent job of monitoring Iraq’s nuclear program before the United States and Britain invaded Iraq, and that they were wrong about Iraq.

At the same time, the United States has not directed its fury towards other aspiring nuclear powers. It ignores that Pakistan, a country whose army is run mostly by Islamic extremists and its population provides sanctuary to Osama bin Laden, has nuclear weapons. It assisted Israel’s development of nuclear weapons, exported nuclear technology to China, offered a deal to North Korea regarding its nuclear bombs, not protested that South Korea and Taiwan have tried to enrich uranium and produce nuclear bombs, and not expressed any concerns that Brazil has refused to allow the IAEA full inspection of uranium enrichment facilities that are under construction, although Brazil provided nuclear materials to Saddam Hussein in the 1980s. Such inconsistencies have turned Iran’s nuclear energy program into a nationalist cause supported by the vast majority of Iran’s population.
International Implications
Iran’s nuclear program will not result in a nuclear arms race in the Middle East as the region is already awash in nuclear weapons. Israel, Russia, Pakistan, and India already possess nuclear weapons. Turkey is a member of NATO and protected by its nuclear weapons, and Saudi Arabia and the Arab countries of the Persian Gulf are protected by the US forces there. Turkey and Egypt have recently expressed interest in acquiring nuclear reactors, but that does not imply that a race has started in the Middle East. After exhausting its oil and gas resources in an undisciplined way, it is only natural for Egypt to look for alternative energy sources. Likewise, it is prudent for Turkey to develop a nuclear energy program, given its reliance on imports of oil, gas, and electricity. If Iran is forced to abandon its nuclear fuel cycle, it will have a strong negative impact on development of NPPs as an energy source in developing countries since it will imply that the provisions of the NPT that recognize the right of all nations to make peaceful use of nuclear energy will be respected by the United States only so long as it likes the nations in question. This may lead the international community to another Iran, whereby a nation tries to hide its nuclear energy program until it is very advanced. As long as the IAEA has not found Iran in violation of its international obligations towards nuclear weapons, the global community must not give in to unreasonable pressure by those nations that use international treaties as tools to advance their and their allies’ agenda.