Posted on 01/23/2006 6:19:46 AM PST by ex-Texan
(Jan. 22) - 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."
Bracing for sanctions - U.N. or otherwise - Iran's central bank said on Friday that it is moving its foreign currency reserves out of European banks as a pre-emptive measure.
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.
Now can we drill in ANWAR?
Time to drill in Alaska, and Utah if the reports from there are true.
Ahhhhhhh...looks like my company stock will go up then.
"And let's all raise our prices at the same time, too. But without colluding or anything."
Absolutely, oh, and you forgot, natural gas. We should raise that too. See, the supply could be exhausted by a shift from oil to natural gas. But as of right now, people have conserved, so we need to raise rates because they didn't use as much, even though we told them to conserve. And if they had used more, we'd claim supply and demand.
De-regulation... it's good for all of us?
Do we(the US) even get any oil from Iran?From what I can tell,the answer is no with Canada, Saudi Arabia, Mexico, and Venezuela as the leading suppliers
Fat, lazy and inept American politicians are to blame for the fact we are MORE dependent on foreign oil than we were before the department's creation. Blame the stupid American public for the fact we have no more nuke energy plants.
Stupidity in our nation is to blame.
What nonsense. AP, carrying the anti American flag, once again.
We control that strait, even if they decide to lose all of their assets in the area by fooling with the US.
As far as Iran stopping oil, other countries will pick up some of the slack and our strategic reserves are enough to allow quite a bit of time to end Iran.
Iran is probably just playing the traders to drive up the price.
Do a search. MaCain has just come out strongly angainst drilling in ANWAR.
"I'm sending those crooks $280 today to keep my house at 66 degrees last month."
You realize that most of the posters here consider us dolts for even complaining about such things. The attitude seems to be: "If they can stick it to you, they should. If you don't like it, figure out how to get out of it."
Sanctions make so sense.
You would have the same oil prices after a military strike which has a an exponentially better chance of eliminating or severely curtailing their nuke program. So why bother with sanctions which will not work.
See my # 11.
Doesn't matter. Oil is fungible and a shortfall anywhere in the world will drive prices through the roof.
"Looks to me like Venezuela, Bolivia, Colombia, Mexico, et al are planning to put the squeeze on the U.S."
Wait! Did you forget where you are? This is FR. That's a GOOD thing. If those countries can squeeze every last nickel out of us, they should.
In reality, it could be good long term, after much short term pain. We won't move to alternatives or drill in ANWR until the pain becomes unbearable.
I went from natural gas to geotherm electric, with a 3000 sf house and 3 kids our home is totally electric, the largest bill we had this year was $170, that was for all utilities in one payment. I reccomend the water furnace to anyone who has the acreage for the ground loop, or better yet if they have access to a pond then the water loop is the best (thats what we have).
You see it....I see it....but the press and most others don't or don't want to see it.The speculation will,once again raise prices more than an actual supply and demand problem.All we would have to do is buy more from Russia.
Doesn't matter when it comes to the price of oil.
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