Iran's Embargo Spirals World Oil and Gas Prices

by John M. Curtis
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Copyright February 23, 2012
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           Iran’s recent oil embargo to France and Great Britain have driven world oil and gas prices through the roof.  Jumping about 20% in the last week, U.S. and world oil and gas prices took a sizable leap upward in response to a growing prospect of an Israeli or U.S. attack on Iran’s nuclear program.  Just as the Eurozone crisis and world economy showed signs of life, a spike in oil and gas prices have thrown economists for a loop.  Pushing the Iranians to the brink, the Israelis have threatened in recent weeks to go ahead with bombing of Iran’s nuclear facilities, something that doesn’t assure anything about slowing Iran’s atomic program.  World oil traders have spiked crude oil prices to $106 a barrel, driving gasoline and diesel prices into the stratosphere.  U.S. and European authorities have frozen the Iran’s Central Bank’s assets to pressure Iran back to the nuclear bargaining table.

            When the nuclear standoff hit loggerheads last month, Iran threatened to close the Strait of Hormuz through which 20-30% of the world oil passes.  Whether or not Iran can actually close the 30-mile narrow opening to Persian Gulf and Arabian Sea is anyone’s guess.  Western security experts say that Iran could, if provoked, hit U.S. warships and international freighters with missiles and torpedoes further spiraling world oil and gas prices.  With Vienna-based International Atomic Energy Agency inspectors denied access to Iran’s nuclear facilities, it raises tensions over a possible military confrontation to stop, once-and-for-all, Iran’s suspected pursuit of nuclear weapons.  Any hot conflict in the Persian Gulf would cause world oil and gas prices to rocket to unprecedented levels, jolting the world economy.  President Barack Obama, European, Russian and Chinese leaders have all urged restraint.

            Iran has already witnessed shortages of basic food commodities, like rice and cooking oil, anticipating a possible confrontation with the West over its nuclear enrichment program.  Iran knows that any attempted blockade in international waters would be regarded as an act of war.  They also know that their own supplies of basic commodities would be blocked, creating more desperate shortages.  Calling the Strait of Hormuz “the most important checkpoint in the world,” energy expert and Pulitzer Award-winning author of “The Prize and the Quest” Daniel Yergen warns that any conflict would spike worldwide oil and gas prices   Energy traders at the New York Mercantile Exchange often take advantage of global crises to hike crude oil and gas prices.  Obama has tried to get Israel to stop the incendiary rhetoric that now impacts global oil and gas prices.

            Oil, gas and diesel prices factor directly into an economy’s inflationary concerns.  Higher energy prices drive core inflation, making it more expensive to bring goods and services to market.  “We’ve seen oil prices just on threats go up $5, $10 a barrel” in a day  “This is Iran’s trump card,” said Yergen, concerned that oil and gas prices could go up by over 50% within just days if there’s any actual military action.  Pump prices in the U.S. have rise 9% since January, raising the wholesale price of unleaded regular nationwide to $3.58, well below the record of record of $4.11 set in July 2008, expecting record prices by late spring or early summer.  “Closing the Strait of Hormuz—that thing is 30 miles wide,” said Credit Suisse oil analyst Jan Stuart, would be “suicidal” for Iran.  “You need a gazillion boats to literally close it off.  It can’t happen,” said Stuart, believing that Iran was bluffing.

            Whatever Israel’s worries about Iran nuclear program, Israeli Prime Minister Benjamin Netanyahu and Defense Minister Ehud Barak need to dial back the incendiary rhetoric before world oil and gas prices spiral out-of-control. Iran’s secrecy over its nuclear program certain indicated they’ve got something to hide.  But before the Iraq War, Saddam Hussein also refused inspections despite the fact he had nothing really to hide.  When you add up all the lost U.S. blood and treasure, the costs of the Iraq War were hardly worth the sacrifices.  When the dust settled after Saddam was driven from Baghdad April 10, 2003, the U.S. military found no weapons of mass destruction, whether biological or nuclear.  No one really knows whether speculation about Iran’s nuclear weapons program has merit.  Threatening attacks have caused runaway inflation in world oil markets.

            Given the fragile state of the world economy, it’s irresponsible to threaten attacks and push world oil and gas prices through the roof.  Speculation about Iran’s nuclear weapons program is no different than the irresponsible conjecture before the Iraq War.  Whether or not Iran continues to enrich uranium for whatever purposes, there’s no real proof that they’re trying to build nuclear weapons.  Saddam didn’t want to answer questions before the Iraq War because he was bluffing about his arsenal of weapons of mass destruction.  Like Saddam, Iran’s supreme leader Ali Khamenei and his mouthpiece President Mahmoud Ahmadinejad like to bluff about their military prowess, including possible WMD.  Instead of declaring an oil and gas war on the world, the West should back off the threats and incendiary rhetoric to let oil and gas prices come back down reasonable levels.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.       

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