Flawed thinking

Fareed Zakaria routinely has intelligent, thoughtful and well informed guests on his Sunday morning show, GPS. One guest on his show last Sunday, Bruce Bueno De Mesquita, made some really bizarre remarks.

First  said this:

"Betting on what Putin will do if the price of oil is high, he'll oppress because that's the efficient way when he's got the money to take people to the streets and bash heads in. Then he'll become more oppressive. If the price of oil were to drop substantially, then he would probably liberalize because that would be the efficient solution under those circumstances."

History suggests just the opposite; oil revenues have been used to create jobs and keep people happier, at least materially, and so prevent them getting restive. Even the Romans knew this - remember 'bread and circuses'?

Later on, he went on to make this suggestion:

"It seems to me that there is a deal that could be put on the table that would tie their hands to reveal the truth of what their intentions are and that is for us together with our European friends to arrange to deliver the civilian energy that Iran claims it needs. They pay for it. They pay the price up to what they're spending on their nuclear program allegedly for civilian purposes, and they are guaranteed the energy. As long as we deliver the energy, they allegedly have no reason to develop the nuclear capability. As long as they don't develop the nuclear capability, we have an incentive to deliver the energy." 


This was particularly puzzling: why Iran would, absent any nuclear ambition, consider this as an attractive proposal?
 
First, since electricity generated by nuclear power is more expensive than that from gas or coal, Iran would be overpaying for electricity (albeit that it would be saving money relative to its current level of expenditure).

Second, and more importantly, Iran claims (and may indeed actually be) seeking energy independence. That a country doesn't want to be held at the mercy of a foreign supplier of a critical resource isn't to hard to believe - the US has been talking about energy independence certainly since the 1973 oil crisis.

A plan to replace home-grown power with any foreign source of supply over which Iran has no control seems problematic from the Iranians' perspective. The supposed "guarantee" of that external supply is its stepping away from nuclear related research and development.


However, over time capabilities decay, and ten years or so down the line, when Iran's nuclear capabilities have atrophied, the West could stop supplying Iran with electricity in order to extract some other concession; Iran, in trading its nuclear program for a contract to buy electricity from outside, creates a dependency on potentially adversarial partners.


In order to keep the deal in place, Iran must therefore keep working on nuclear technology in some capacity in order to maintain its capability and the credibility of the potential threat it poses.


Thus Iran would thus need to keep spending money on its "civilian" nuclear program while at the same time buying electricity at inflated prices. Not only does this not look attractive to Iran, but any attempt by Iran to try to keep some activity in its "civilian" nuclear program would be unacceptable to the West. So the deal would only be offered if Iran gave away the only bargaining chip that maintains a guarantee of avoiding being held up at some future date.

Bueno De Mesquita, an economist, has been lauded as a visionary for his application of game theory to politics. If this is the best he can come up with I'll stick to reading the tea leaves.