Iran’s double-edged oil weapon

Any moves might stir civil unrest
To accomplish that, Iran has weapons at hand beyond a Strait of Hormuz blockade that could account for serious cumulative damage.

Tehran, for instance, could opt to use its suspected influence among Shiite militias in neighboring Iraq. Sabotage of oil pipelines and facilities could cripple much of Iraq’s oil exports, now at close to 2 million barrels a day.

With the world already consuming close to all the oil being produced, an Iranian and Iraqi shortfall approaching 4 million barrels a day would leave demand far outstripping supply.

But Iran would also pay a hefty price if the petrodollars that now represent 80 percent of export revenues are reduced, potentially stirring civil unrest in a nation with an official unemployment rate of 14 percent — but which some analysts say could be far higher.

“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.”

The U.S. Department of Energy estimates 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’s economy has weak spots from trade restrictions on sensitive technologies.

They include U.N. sanctions levied as a result of its refusal to halt uranium enrichment, decades of slowly tightening U.S. economic restrictions — including tough new sanctions against Iran’s military, banks and industries Washington imposed last month — and reduced trade and financial links with Europe due to U.S. pressure.

Ace up sleeve
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 last year had 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.

At close to 700 million barrels, U.S. strategic reserves alone are enough to make up for more than two months of total crude imports — and America depends on Middle East oil for only 15 percent of its needs.

Still, a military strike on Iran would likely bring long-term consequences to the oil markets, said Frederic Lasserre, head of commodities research at Societe Generale in Paris.

Any U.S. attack “would reinforce the idea that geopolitics is deteriorating year after year,” he said. “First it was Iraq, now Iran. People will ask which oil producing country will be next?”

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