Iran Sanctions Could Drive Oil Past $100

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.

I just wanted to send you Bush Sr. Energy plan that he wanted to implement in 92'. I don't know why this stuff didn't work.
He wanted to be oil independent, and such.

It's all a joke. Oil prices are going to hurt us. Yet, we are closing oil wells and not drilling.

June 10, 1992

PRESIDENT BUSH'S NATIONAL ENERGY STRATEGY

"The driving force behind [our National Energy Strategy] is
straightforward. It relies on the power of the marketplace,
the common sense of the American people and the responsible
leadership of industry and government."

President George Bush
February 20, 1991

"When our administration developed our national energy
strategy, three principles guided our policy: reducing our
dependence on foreign oil, protecting our environment, and
promoting economic growth."

President George Bush
October 25, 1991

Summary

o On February 20, 1991, President Bush released to the
American people his National Energy Strategy (NES), a
comprehensive strategy designed to increase America's energy
security, enhance environmental quality, and fuel future
economic growth.

o In early March 1991, the President sent to Congress
legislation to implement key aspects of his NES. The
Congress is currently considering energy legislation that is
substantially modeled upon the President's National Energy
Strategy. Recently, energy bills have passed the Senate 94
to 4 votes and the House 381 to 37 votes.

o The President is pleased that the Senate and House of
Representatives have made progress toward adopting a sound
national energy policy. The Senate and House energy bills
would implement several key elements of the President's NES.
By following the President's NES, they would make the United
States less vulnerable to the economic damage resulting from
excessive dependence on insecure foreign suppliers, through
initiatives designed to promote energy efficiency and
increase domestic production. While there is much work to
be done, the President believes the Senate and House bills
form a welcome bipartisan basis for moving to final action
in conference.

o The President's National Energy Strategy builds upon a
number of Bush Administration initiatives including the 1990
revisions to the Clean Air Act, 1989 Natural Gas Wellhead
Decontrol Legislation and incentives provided in the 1990
budget agreement for domestic producers of renewable and
fossil energy.

The President's National Energy Strategy

o President Bush released his NES on February 20, 1991. The
NES is a comprehensive and balanced strategy for an energy
future that is secure, efficient, and environmentally sound.
The NES is designed to:

-- Diversify U.S. sources of energy supplies;

-- Increase efficiency and flexibility in energy
consumption;

-- Reduce the dependence of the U.S. economy on oil while
increasing domestic oil production;

-- Increase the use of natural gas, a domestically
abundant source of clean energy;

-- Increase the production and use of renewable energy
resources;

-- Increase the use of alternative transportation fuels;

-- Encourage efficiency and competition in electricity
generation and efficient use of electric power;

-- Reduce U.S. emissions of greenhouse gases from
projected levels;

-- Improve air, land, and water quality by developing and
using environmentally superior technology;

-- Create jobs and promote economic growth; and

-- Maintain U.S. preeminence in fundamental science and
engineering research and accelerate commercialization
of technologies developed through Federally funded
research.

Increasing Energy Conservation and Efficiency

o President Bush is committed to achieving greater efficiency
in every element of energy production and use. Greater
energy efficiency can reduce energy costs to consumers,
enhance environmental quality, maintain and enhance our
standard of living, increase our freedom and energy
security, and promote a strong economy.

o The President has proposed over $330 million in the FY 93
budget for energy conservation research and development,
double the amount when he took office. The following are
examples of specific proposals in the President's NES to
increase our energy efficiency.

Transportation:

o Transportation efficiency is targeted by expanding efforts
to develop advanced transportation technologies, such as
more fuel efficient engines, electric vehicles, more
intelligent-vehicle highway systems, and magnetic-levitation
and other high speed transportation. These advanced
technologies hold the promise of significant energy savings
in the transportation sector.

o The NES also promotes efforts to accelerate scrappage of
older, gas guzzling cars and increase use of public
transportation and ridesharing by raising the limit on tax-
free commuter subsidies that employers can give employees.

o These and other measures directed at transportation are
projected to save the equivalent of 3.0 million barrels of
oil per day by the year 2010 without the harmful effects of
higher taxes, increased regulations or oil import fees. Even
though the number of passenger miles driven is estimated to
increase 60% by 2010, the volume of gasoline purchased by
consumers is projected to fall by 10%.

Electricity:

o Analysts forecast that over 90 gigawatts (about 90 large
power plants) will be needed over the next 10 years to meet
increased electricity demand. The President's NES will meet
this increased demand by both increasing efficiency and
expanding the range of fuels and technologies for
electricity generation.

o The President's NES will increase electricity efficiency and
competition among suppliers by amending the Public Utility
Holding Company Act to remove restrictions on electric
generators who wish to build, own, and operate power
facilities in more than one area, and by reforming the
Public Utility Regulatory Policies Act to modify size and
fuel use restrictions for small power producers.

o The NES also supports State and utility efforts to invest in
energy efficiency as an alternative to power plant additions
and provides tax-free treatment of utility discounts on
consumers' electricity bills for efficiency investments. It
will reduce Federal subsidies for the debt of Federal Power
Marketing Administrations and expand access to electricity
transmission for utility and non-utility wholesale buyers
and sellers.

o The electricity efficiency measures in the President's NES
are projected to reduce electricity growth by over 10% in
2010 and save consumers over $30 billion in electricity
costs.

Residential and Commercial Building Conservation:

o The NES targets residential and commercial buildings'
efficiency by increasing Federal funding for R&D in building
technologies. This is to develop and encourage the use of
cost-effective building efficiency standards.

o The NES also encourages providers of home mortgages to
consider energy efficiency ratings in their pending
decisions with prospective home buyers and expands energy
efficiency labeling programs to include certain other
equipment, such as light bulbs.

Industry:

o The NES will increase industrial energy efficiency by
increasing research and development for industrial waste
reduction and recycling, supporting the use of industrial
energy audits at the state and local level, and modifying
regulations that inhibit the use of waste minimization
technologies.

o Industrial output is expected to grow almost 80% by the year
2010, but the United States is projected to use only 25%
more energy to power its industrial facilities.

Federal Government:

o President Bush has issued an Executive Order directing all
Federal agencies to reduce overall energy consumption in
Federal buildings 20% by the year 2000, and to reduce fuel
consumption in Federal vehicles 10% by 1995.

o President Bush has directed Federal agencies to maximize
their purchases of alternative fuels vehicles. Over 3,000
such vehicles have already been purchased and are in use.

Securing Future Energy Supplies

o The U.S. is part of an energy interdependent world, but U.S.
vulnerability to supply disruptions must be reduced. One of
the objectives of the NES is to increase the environmentally
sound production of domestic energy resources. Initiatives
in the NES will increase domestic oil production by up to
3.8 million barrels per day in 2010, and increase
economically recoverable resources by 25 to 70 billion
barrels. The NES also includes a major commitment to
advanced energy technology through research and development
initiatives for energy security.

Oil:

o President Bush has led efforts to reform alternative minimum
tax (AMT) as it applies to independent energy producers.
President Bush has actively supported measures to remove
serious disincentives to domestic production of oil and gas
that exist in current tax law. The President believes that
reform of AMT is absolutely necessary to help revitalize the
domestic oil and gas industry.

o The NES establishes a new program of joint Federal/private
investment in advanced oil recovery technology. By 2010,
advanced oil recovery technologies are projected to increase
U.S. production by over 3 million barrels per day.

o The President supports the expansion of worldwide strategic
petroleum stocks available to offset future oil supply
disruptions.

o The President's NES encourages oil production in America by
calling for the approval of access to the coastal plain of
the Alaskan National Wildlife Refuge (ANWR) and some Outer
Continental Shelf areas under strict environmental
safeguards. The President will continue to press Congress
to allow access to ANWR. The NES also supports an increase
in the production of California heavy oil and access to
export markets.

o The NES supports the expansion of production capacity
throughout the world and the Administration has initiated
programs to achieve this end in the Western Hemisphere and
in the former Soviet Union.

o The President supports Federal royalty reductions for on-
shore oil and gas producers. The Administration is
examining royalty reductions on off-shore production.

Natural Gas:

o On March 6, 1992, President Bush announced steps to bring
relief to the natural gas industry. The Administration will
remove regulatory barriers that impede the use of natural
gas by electric utilities. It will also encourage greater
usage of natural gas vehicles by removing regulatory
barriers to the sale of compressed natural gas for use in
motor vehicles, and will issue proposed emission standards
for natural gas vehicles that will allow them to compete on
an equal basis with other vehicles.

o To promote domestic gas production, the President's NES
proposes legislation which will streamline gas pipeline
construction regulations and develop more efficient
environmental review procedures. And, pursuant to the NES,
the Federal Energy Regulatory Commission recently proposed
regulatory reforms which will deregulate pipeline sales
rates in competitive markets and reform gas pipeline rate
designs.

o The Administration has proposed increased funding for
natural gas research and development, particularly for
technologies to increase utilization of natural gas for
environmental compliance. The Department of Energy has also
restructured its natural gas program to shift research and
development activities to meet nearer-term objectives and
cost-sharing investment with industry.

o NES recommendations relating to alternative fuels and
electricity regulatory reform (PUHCA) will also
substantially increase utilization of natural gas.

o Initiatives in the NES are expected to increase natural gas
consumption by almost 1 trillion cubic feet by the year
2000.

Coal:

o The President's NES promotes the use and exportation of
clean coal by promoting clean coal technology and by
creating favorable export markets for U.S. coal and coal-
burning technologies. The NES will clarify the
applicability of the Clean Air Act to refurbished power
plants, and pursue research and development on environmental
protection during mining.

o Initiatives in the NES will help the U.S. coal industry
capture a major share of the growing international coal and
coal technology markets, while at the same time improving
our ability to more cleanly and efficiently utilize the
large U.S. supplies of low cost coal.

o The President supports full funding of the Five-Round Clean
Coal Technology R&D program. This Federal-industry $5
billion cost-shared program is developing high efficiency,
low-emission technology to meet the stringent air quality
standards of the next decade.

Nuclear Power:

o The NES proposes legislation which will preserve the nuclear
power option to meet electricity needs by reforming and
streamlining the nuclear plant licensing process.

o The NES supports the renewal of licenses for existing
nuclear plants, where this can be done safely and
economically. It also supports standardized designs for
"next generation" power plants and accelerates research and
development of "next generation" passively safe design
nuclear reactors.

o The NES contains initiatives to ensure progress on the
management and disposal of nuclear waste.

Renewable and Alternative Energy:

o The President's renewable energy research and development
budget for FY 93 was increased to nearly $250 million, a
more than 65% increase over the amount when he took office.

o The NES encourages the development and use of alternative
fuels and technologies through research and development and
by requiring centrally-fueled fleets to purchase vehicles
capable of using alternative fuels. The Department of
Energy has teamed with industry to establish a joint
research venture to make possible a new generation of
batteries for electric vehicles.

o The President's NES encourages hydropower projects by
proposing legislation which would eliminate unwarranted
Federal regulation and streamlining hydropower licensing
projects.

o The Department of Energy has begun to test new ways to
produce ethanol at cost-competitive prices. Increasing the
use of ethanol in the transportation sector will make the
United States less dependent on oil imports.

o The Department of Energy completed construction of the Wind
Energy Test Center in September 1991. Advances in
technology of wind as an energy source will enhance its
chances of becoming a competitive resource for electricity
in many areas of the country. The President requested $22
million for wind energy research and development in the FY
93 Budget.

o The Department of Energy has entered into a joint venture
with private companies to develop a system that uses solar
power to operate generators. President Bush has requested
$27 million in his FY 93 Budget for the research and
development of solar energy.

o The NES supports converting municipal solid waste to energy
as part of a comprehensive waste management strategy.

o The NES proposes to intensify international collaboration in
fusion research to develop a demonstration plant by 2025 and
a commercial plant that could cost-effectively supply power
by 2040.

o Electricity generation from renewable energy sources is
projected to increase 16% by 2010 under the NES.

Energy and the Quality of Air, Land and Water

o Coupled with the Clean Air Act Amendments that the President
signed into law in 1990, the NES strives to enhance
environmental quality by reducing sulphur dioxide emissions
by 40%, nitrogen oxides by 30%, and volatile organic
compounds emissions by 25% from projected levels in 2030.
The NES will reduce the cost of achieving greater
environmental benefits.

o The NES, will reduce greenhouse gas emissions and
demonstrate U.S. international leadership on this issue. At
the same time, ongoing Federal research aimed at reducing
scientific uncertainty on the potential for global climate
change, will provide an improved basis for future policy.

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