May 19, 2006


The Weapon Iran May Not Want to Use: Withholding Oil Exports Could Wreak the Most Havoc at Home (Steven Mufson, 5/19/06, Washington Post)

[S]enior policymakers within the Bush administration and their French and British counterparts have come to the conclusion that Iran would continue to sell oil abroad even in the face of heightened economic and diplomatic pressure from Western powers. Administration officials have considered and discounted the possibility that Iran would shut in oil supplies, robbing world markets of much-needed crude.

Experts on Iran point to a number of reasons it might be reluctant to cut oil exports. Oil accounts for 85 percent of Iran's exports, according to an International Monetary Fund report issued last month. Revenue from those exports makes up 65 percent of government income. And Iran uses a good chunk of that money to raise public-sector wages and to subsidize its own gasoline prices, one way to keep domestic discontent in check when unemployment is running at more than 12 percent and inflation at 13 percent.

"If you think a little beyond the moment when this happens, the credibility of the country as an economic partner will go down the drain," said Giandomenico Picco, a consultant who was a mediator during the Iran-Iraq war. "The economy as a whole will be affected, not just because of lack of income." Picco said that already some European banks are reluctant to do further business with Iran and that some petrochemical projects might be delayed.

Moreover, the politics of cutting off exports are muddy for Tehran. In recent years, Iran has shifted its oil exports away from the West. It sells substantial amounts to China and India, though U.S. allies such as Japan, Italy and France are still the major buyers. None is sold to the United States because of sanctions dating to the 1979 hostage crisis. All oil is fungible and even selected export cuts will affect market prices regardless of the customer; the symbolism of hurting Japan, China and India to retaliate against sanctions imposed by the United States and its allies would be fuzzy.

So far, Iran's President Mahmoud Ahmadinejad seems to be banking on the oil weapon even as European countries try to avoid testing it. On Wednesday, he rejected a potential European offer of incentives, including a light-water nuclear reactor, to give up uranium enrichment. "Do you think you are dealing with a 4-year-old child to whom you can give walnuts and chocolates and get gold from him?" Ahmadinejad told thousands of people in central Iran.

Pretty much. If we can get him to do further damage to the economy and destabilize his own government we should.

Posted by Orrin Judd at May 19, 2006 9:36 AM

An article Hugo Chavez also ought to read, especially since Venezuela's investments in the U.S. via Citgo make his country potentially even more vunerable to their leader's petulence.

Posted by: John at May 19, 2006 9:44 AM

Speaking of "vulnerable"...

Today's WSJ has a great article by Maria O'Grady on how inflation (which OJ insists doesn't exist) is empowering Iran and Venezuela by flooding them with dollars.

Reading the article, one gets the idea that Chavez is going to be a real problem.

Posted by: Bruno at May 19, 2006 10:56 AM

It's like a game of chicken. There's still the potential Iran would do it though. We should be prepared for the turmoil in the short term, but it's good to know that it's ultimately self-defeating for Iran.

Posted by: Chris Durnell at May 19, 2006 1:18 PM

I know I'd be willing to pay 4-5$ for a gallon of gas temporarily if it meant the destabilization and overthrow of the current Iranian regime.

Posted by: megrez80 at May 22, 2006 12:32 PM

I know I'd be willing to pay 4-5$ for a gallon of gas temporarily if it meant the destabilization and overthrow of the current Iranian regime.

Posted by: megrez80 at May 22, 2006 12:33 PM