Posted on 01/22/2006 4:15:31 PM PST by Brilliant
A surge in oil prices last week to almost $70 a barrel on concerns about the restart of Iran's nuclear program only hints at what may lie ahead.
Prices could soar past $100 a barrel, experts say, if the U.N. Security Council authorizes trade sanctions against the Middle Eastern nation, which the West accuses of trying to make nuclear bombs, and Iran curbs oil exports in retaliation. A sharp global economic slowdown could follow.
That's the dilemma the United States and European nations face as they decide whether to act. But Iran would also pay a hefty price if the petro-dollars that now represent 80 percent of export revenues are reduced, potentially stirring civil unrest in a nation with a 14 percent unemployment rate.
"They would shoot themselves in the foot," said Mustafa Alani, director of national security and terrorism studies at the Dubai-based Gulf Research Center. "It's one thing to test the market psychology, it's another to take the actual step and stop oil exports."
Iran, the second-largest oil producer within the Organization of Petroleum Exporting Countries, exports roughly 2.5 million barrels per day -- 1 million barrels more than current excess production capacity worldwide. It also controls the strategic Strait of Hormuz, a critical shipping lane in the Middle East.
"Even if Iran pulled a small amount of its oil off the market, say it pulled a half million barrels a day, I could see oil prices literally jumping over the $100 per barrel mark," said James Bartis, a senior researcher at Rand Corp.
But other oil analysts say prices would likely not climb much higher than $75 a barrel before strategic reserves would be released and demand would begin to taper off as economic activity slowed around the world.
So who would be hurt more? The United States and other nations say it would be Tehran and argue against succumbing to economic blackmail in any case. "We cannot be intimidated by economic threats from their side," Sen. Trent Lott, R-Miss, told CNN.
The U.S. Department of Energy estimates that oil exports finance about half of the Iranian government's budget. And while high oil prices have boosted the annual growth rate to about 5 percent, Iran has never really recovered from its 1980-1988 war against Iraq and trade restrictions on sensitive technologies. The Iran Nonproliferation Act, which the U.S. Congress passed in 2000, deters international support for Iran to develop nuclear, chemical and biological weapons programs and missile-delivery systems.
For weeks, Iran's state television has sought to show a people united behind the leadership, showing passer-by on Tehran city streets expressing their support for the country's strivings for nuclear independence.
Still, Alani of the Gulf Research Center questioned "whether the ordinary citizens will be willing to risk sanctions and endure a lot of suffering like the Iraqis suffered for 13 years" under U.N. sanctions.
Oil consuming nations, meanwhile, have at least one ace up their sleeves -- crude reserves. The United States and other members of the International Energy Agency have a combined 1.48 billion barrels of oil in their emergency stocks. That's equivalent to about 600 days of Iran's net oil exports of 2.4 million barrels per day.
OPEC might be able to add 1.5 million barrels per day to world production, mostly from Saudi Arabia. And oil analyst Fadel Gheit at Oppenheimer & Co. in New York said Russia might be able to crank up exports by about 500,000 barrels once its domestic home-heating demand eases.
Gregory L. Schulte, chief U.S. delegate to the International Atomic Energy Agency, accused Iran last week of deceiving the world about its atomic program, declaring that moves to haul it before the U.N. Security Council were meant to deny "the most deadly of weapons to the most dangerous of countries."
His comments were part of increasing international pressure on Iran since it removed seals from uranium enrichment equipment earlier in the month and said it would start small scale work on the process that can make both fuel and the fissile core of nuclear warheads.
"It's a very difficult situation where you don't know which side is going to blink first," said Leonard Spector, deputy director of the Monterey Institute of International Studies' Center for Nonproliferation Studies.
It's also not clear the United States could win a referral on sanctions at the Security Council, where members Russia and China are Iran's main allies. Both have strong economic and strategic ties to Iran, with China a large oil consumer and drilling partner and Russia a key supplier of arms and nuclear technology and services for what Tehran says is a peaceful program. Additionally, oil-rich Russia would benefit from higher prices and increased demand for its crude if Iran's oil were off the market.
Influential India, which imports 75 percent of the crude it consumes, some from Iran, is a wild card in the referral struggle.
It joined the U.S., Britain, France and Germany in September to back an IAEA resolution that set the stage for reporting Iran for violating the Nuclear Nonproliferation Treaty. But pressure is building on the Indian government not to vote against Iran when the 35-nation IAEA board meets Feb. 2 to consider actual referral.
"India must not allow itself to be dragooned into joining the Washington-led nuclear lynch mob against Iran," The Hindu, one of India's most influential newspapers, cautioned Thursday. "Aside from the lack of any legal basis for threatening Iran with sanctions, India should consider what the U.S. pressure on Tehran will do to international oil prices as well as to the overall security scenario in West Asia."
The United States and its allies are thought to have the majority behind them on any vote for referral. Still they would like to see India, China and Russia on board -- all three countries carry weight among other IAEA board nations, and Moscow and Beijing have a vote on the Security Council on what to do about Iran, once it is referred.
Associated Press Writers Alex Nicholson in Moscow, Constant Brand in Brussels, Laurence Frost in Paris, Nirmala George in New Delhi and Ali Akbar Dareini in Tehran contributed to this report. Brad Foss reported from Washington, George Jahn from Vienna, Austria.
DRILL ANWR...BUILD NUCLEAR...GIVE INCENTIVES TO COMPANIES DEVELOPING ALTERNATIVE ENERGY STUFF...
The oil price is determined globally, though. Do you think that the Canadians are going to continue to sell their oil in the US for $60 a barrel if they can sell it in Europe for $100?
I've had my AC on a large part of the day today. (I'm in Mobile)
Do you think that the Canadians are going to continue to sell their oil in the US for $60 a barrel if they can sell it in Europe for $100?
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Certainly not. But how much are they going to sell at $100 per bbl? Yes, I would like to see it happen -- maybe our lame Washington government might get serious about sourcing our own oil for a change....(just maybe)...
Not at all. Look here. Click on NCODA and select "SST Anomaly." Pretty near average....there ain't no normal...only departures from average.
Howdy neighbor! I'm over in Destin and had my a/c on for a bit today as well.
What was that broker that said oil would be over $100 by now? It was sometime last fall about the time of Katrina.
AC? wwahhhhh We've got AC up here too, but ours stands for "arctic cold". It's -25 right now, and colder weather is predicted come tomorrow night. The heat wave is ending, and Russia's sending us a big chill. ;)
;I grew up with horses and would always prefer horses to SUVs
I did not grow up with horses and spent a week on Mackinac Island Michigan, which only has horses and bicycles for transportation. Had I stayed there two more days I'd have gone off and invented the automobile.
More power to you if you do enjoy horses I've nothing against that. But for me I prever horsepower of a different variety.
I don't care what anybody else says, I teach scuba in the northern gulf and am in the water ALL the time. We keep log books detailing each dive and conditions which includes water temperature.
WANT to blame someone? Try the tree hugging not in my backyard kumba ya crowd...they have successfully prevented progress, and NOW you want to blame the company who has had their hands TIED?
Pass the butter...the lobster is great and I just LOVE my frequent flier miles!
YEEEHAH!!!!!!
My suggestion buy one of the following stocks: RES,SPN or WHQ you can not lose when the prices go higher! OHHH if the ragheads start torching wells in the Middle East buy WEL.
Other than that, I love capitalism!
What's up? It's January, suppose to be cold.
I like automobiles too (my family has been in the ups and plenty of downs of that business for many generations).
But I would like to offer the middle finger to the Middle East.
We can invent our way beyond those perverts.
Don't understand how ANYONE that loves this country could EVER vote for a 'rat. 1980, after suffering thru an energy crises, what does Jimmuh Carter do? Signs into law the The Alaska National Interest Lands Conservation Act, which creates ANWR! UN-BELIEVABLE.
Don't get me started on the criminal known as Lyndon Johnson (think welfare state)...and Clinton, who was more concerned about the number of water gallons in my shi&&er than he was about terrorists.
The first victims already arrived - GM and FORD...
It'll get there.
The Iranians will block the strait of Hormuz even if they have to use Kamakazee(sp) fighter jet attacks on the tankers going through there, we won't be able to stop them all.
Any conflict in/with Iran will affect more than Iranian oil.
The Persian Gulf is fairly shallow, it only re-filled between 7-8,000 years ago. (Probably the source of some of the flood myths too)
Any attack or threat of attack will stop shipping, but it will also make neutralization of the threat necessary. The first shots in the war might well be related to the Strait of Hormuz rather than to the nuke threat.
What was that broker that said oil would be over $100 by now? It was sometime last fall about the time of Katrina.
It wasn't Steve Forbes who said it was going down to $40.
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