Oil obviously dominates Iran's foreign policy. Iran is the second-largest oil producer in OPEC, the Organization of Petroleum Exporting Countries. It has large oil reserves that have yet to be developed as well as immense gas reserves.

Having faced this problem for more than twenty years, Iran has today reached a pragmatic conclusion, similar to those it has reached with many other foreign-policy issues. In the early days of the revolution, the Iranians refused to sell any oil unless they received a very high price. They insisted that the shah had always undervalued Iranian oil, effectively selling the country down the drain. The revolutionaries came to power with the idea that they would keep the price of oil very high or they would not participate in the sale of oil at all.

The Iranians soon discovered first that their influence over the oil market was limited, and second that they needed the money. To set up an Islamic state with a successful government, they needed money to make it run. To get that money, Iran had to sell its oil. Immediately after the revolution, Iran became the bête noir of OPEC—the price hawk that constantly recommended cutting production and raising prices. Today, the Iranians play a much more pragmatic game. They cooperate with the other OPEC countries in order to achieve a stable price rather than the highest possible price.

Like Saudi Arabia and other oil-producing nations, Iran has discovered that stable oil prices are worth a great deal. Stability provides these nations with some indication of their available revenues from year to year. In fact, a stable price is preferable to receiving a great deal of oil income one year followed by limited incomes in the following years.

Iran's decision to develop a good relationship with Saudi Arabia was based in part on the reality that the two nations need each other. As the two biggest players in OPEC, they must cooperate with each other if they want to maintain oil prices at a relatively stable and predictable level. This coordination is a fairly new phenomenon.

OPEC was widely feared when it was created in the 1970s. It was perceived by many foreign nations as an organization that would constantly push up oil prices. Curiously enough, OPEC is currently much more interested in maintaining oil prices at a stable and predictable level. The OPEC nations seem to have learned that their customers will go elsewhere if oil prices are pushed too high. They will look to alternative sources of energy, such as solar energy, that are gradually becoming both more effective and more economical. Or they will diversify their sources of oil to include other parts of the world.