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.
Jeff
"potentially stirring civil unrest in a nation with a 14 percent unemployment rate."
There's already unrest in Iran, AP. And a lot of uprising is against that country's leadership -- a VERY good thing.
If they don't sell oil, what are they going to do for money?
In addition to speculative fears over Iran, we all saw what hurricanes did last year to oil prices.
Gulf of Mexico water temperatures are around 10 degrees warmer, right now, from the average where they should be. It's pretty safe to assume that given the head start we now have towards a super-heated Gulf this upcoming hurricane season, I hate to say it but it doesn't look to good.
Every cloud has a silver lining, ANWR would finally open up, nuclear plants built, oil shale and tar sands developed, and more domestic use of coal.
That's okay. We'll send their gas past $10,000 per barrel.
I think it's going to rise above $100 this summer irrespective whether there is a cut off from Iran.
I hear there's some oil tar shale in the Western U.S. and Alberta. Get to work.
Very painful in the short term, but better for us in the long term. $100/barrel oil will dramatically spur alternative energy research and may lead to the "Energy Manhattan Project" that some have been calling for.
We've gotta go back to Alaska & Colorado & Utah and start our long-tooth spinners a'spinnin'.
Jeff
Libs have fought for gas tax after gas tax after gas tax, now we're going to get a price spike.
I'm sure the left will blame (not Iran, not the UN oil sanctions, not their gas taxes) but American oil companies. While they're flying around eating steak and lobster and discussing what's wrong, middle America suffers.
A family member was speaking to someone today who is a car collector and designer, and who said that Bush Sr. had been very interested in alternative auto design research and had managed to get grants going for it (this man received a grant for such research). However, he said that this stopped dead when Clinton took over, mainly because of Clinton's ties to the autoworkers union.
I agree that this might be the kick in the posterior that we need, although I think the Dems are going to hold out and obstruct to the last gasp. Fortunately, I own a horse.
14% unemployment is not that high- to overthrow the government, it'll take more than just an embargo.
I agree that there is unrest in Iran, but it isn't unified under one leader/group. That, and the current regime has shown itself to be pretty resistant when faced with internal challenges.
I grew up with horses and would always prefer horses to SUVs. Now I own a bicycle and telecommute.
I say bring it on. We can adapt.
Should not effect (honestly, anyway) U.S. oil costs -- since the majority of U.S. oil comes from Canada, Saudi Arabia, Venezuela and Mexico. ONLY TEN PERCENT comes from Persia...
Choke on it Iran.
It will be tough for the U.S. for a couple of years, but we will recovered and be stronger for it.
I'll pay $4 per gallon if someone will send the planes against the tyrannt in Teheran.
I agree.
I've already filled up my 55 gallon 'hurricane' gasoline tank. (anticipating - anticipating)
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