If you believe that your son is manipulating the situation, he has all the power and he is handling you well. Stop arguing with him and don't bluff with anything you are not willing to follow through. Attend the graduation if you'd like whether he participates or not and ignore the fact that he is not part of it.
While you are working through these behaviors, try to work out compromises with your son. If he's not willing to go up in front at the graduation, is he willing to sit with his class? Is he willing to march in with the others but sit down with you when they go to the front of the room? Encourage him to participate as much as he is able.
If your son's fears continue to limit his participation, you will want to get him help to deal with this. Talk with the school counselor. She may be able to give your son some individual time or include him in a small group. If you decide that he needs additional help outside the school, the counselor or your pediatrician can refer you to a therapist in your community.