Iran: Willing to use oil as a political tool

Pushed by endless sanctions and talk of war, Iran hints at playing hardball on the global oil market.

It’s been a wild couple of weeks worth of speculation regarding Iran’s nuclear programme – how advanced it might be, how certain the International Atomic Agency should be of its weaponised nature, and what, if anything, can or ought to be done about halting it.

So far, two options have been discussed: More sanctions (which have been done for 30 years) and war.

As pundits and politicos alike whip themselves into a froth arguing if, when, and how Iran should be the target of a military strike from the United States or Israel, Iran seems more interested in wielding a tool it already has in hand: Oil. Or, more specifically, oil transport routes.

Roughly 40 per cent of all tradable oil passes through the Strait of Hormuz, a major choke point running along Iran’s southern and eastern borders, on its way to the world market.

But all Iran’s oil minister, Rostam Qasemi, told Al Jazeera was that if pushed, Iran would be willing to use oil as a political tool.

“We don’t consider crude oil as a political tool. However, if necessary, we’ll use it any way we need,” Qasemi told Al Jazeera’s Teymour Nabili in a televised interview.

The crux of the interview focussed on oil production – Iran’s and Iraq’s – as well as the future of the market. 

The oil minister did not expand on his comment, but Ben Lando, founder of Iraq Oil Report, an oil industry news site, said it would be unlikely that Qasemi meant that Iran might slow its oil production in order to increase the market price.

“If they slowed down production, there’s plenty of other countries in OPEC that would be happy to pick it up. It would have to be a little broader, it would have to be OPEC that would have to decide to slow production,” said Lando.

And if Iran were to do that, Lando said Iran would “just lose money. I think it would be a loss – a total loss – for them.”

“In terms of oil politics, you could look at it from the security side, and if they’re talking about shutting down global oil industries, then that would be seen as a hostile move,” explained Lando.

A counterproductive move

If Qasemi seemed vague on what he meant by using oil as a political tool, Mehdi Mehdizadeh, a member of the Iranian parliament (Majlis), gave a more definitive hint as to the strategy under consideration.

If Iran closes the Strait of Hormuz this will cause an increase in oil prices, and under such circumstances Western industries will be grounded,” he told the Majlis’ official news agency. 

“It is the most important oil choke point in the world – it is a major transit route,” said Kate Dourian, Middle East editor at Platts, a firm that provides benchmark price assessments of energy markets.

A credible threat of closing the Strait could push oil prices to $200 a barrel, up fromthe current $110 [Al Jazeera]

What is interesting about the Strait, she said, is that a lot of other countries rely on it for exporting oil and gas, such as Saudi Arabia, the United Arab Emirates, Kuwait, Iraq and Qatar.

“Iran has no other outlet for its oil, so it would be cutting off its nose to spite its own face,” said Dourian.

By contrast, Saudi Arabia has some capacity to move oil through the Red Sea and Suez Canal, and the United Arab Emirates has built a pipeline that bypasses the Strait of Hormuz and goes directly to Fujairah.

“Despite the bombastic talk from Iran, if you look at the history and the conflict in the area, the Strait of Hormuz has never really been shut down.”

What Iran can accomplish, said Dourian, is causing a “nuisance” by possibly planting mines in the waters of the Gulf, sending insurance rates sky-high and pushing a significant percentage of the oil that runs through those waters off the market, rendering the ships that go through them uninsurable.

But while some countries have certain – if limited – options for moving their oil via other routes, others, such as Iraq, are stuck with the Strait of Hormuz.

Besides, Dourian points out that while Iran has the longest shoreline in the Strait, it does not have the authority to close it, as the Strait is controlled by Oman.

Gulf Arab states are also used as military bases by the US, making them vulnerable to possible Iranian counterstrikes.

“I mean, don’t forget, you’ve got an airbase in Qatar, you’ve got bases in Kuwait and in the UAE, so you’ve got pro-Western monarchies in the region who will be viewed, perhaps, as being allies of the United States,” said Dourian.

“This is coming at a really, really awkward time in relations between the Iranians and the Arabs.”

A lose-lose proposition 

With the Eurozone debt crisis sending world markets into a tailspin and US and Japan – once mighty economies – struggling, meddling with the oil flow could spell potential disaster.

For one thing, Iraq is on track to increase its oil production, and Lando, who is based in Baghdad, said that by the end of next year, Iraq could be producing more oil than Iran. So closing the Strait at this point would spell disaster for Iraq’s recovery. But the effects of closing the Strait would reach far and wide.

“The whole world would come to a halt – from China to Japan to Tierra del Fuego. There’s a lot of oil that comes out of there, and that’s their one trump card,” said Tom Whipple, an energy expert and former CIA analyst.

This, said Whipple, could become extremely messy. “Something like 16 million barrels of oil go through the Strait each day now. No pipeline in the world can handle anywhere near that now.”

If Iran tries to block or close the Strait, Whipple said he suspected that “the whole world would gang up on Iran – even the Chinese. They’re getting a lot of Saudi oil, and their economy would go down the tubes very quickly – as would Europe,” said Whipple.

Additionally, shutting down the Strait of Hormuz would have a disastrous effect on Asian economies.

“More than 50 per cent of the oil that goes through the Strait goes to the Asian market – it’s going to China, Japan, South Korea, rather than the US market,” said Dourian.

“The knock-on effect will be huge.”

An act of retaliation

Mining the Strait of Hormuz would be “a last resort” said Sabahat Khan, an analyst specialising in maritime security issues at the Institute for Near East & Gulf Military Analysis.

Iran’s reliance on the Strait of Hormuz and its dependence on ship-bound imports and exports, said Khan, is greater than that of other countries in the region.

He said that Iran would likely only mine the Strait – thereby damaging its own economy and courting international condemnation for disrupting global oil market – in response to an attack, and not preemptively.

The Strait was mined, in a rather limited way, during the Iran-Iraq war, but those mines were fairly rudimentary compared to what’s available now. But the impact, said Khan, is more psychological than anything else.

“It’s about perception. For example, a lot of the world’s biggest economies are still in an economic crisis. If oil prices shoot up 30, 40, 50 per cent, the impact of that is massive. It’s a form of deterrence it has,” said Khan.

“In a way, it’s a form of economic warfare.”

‘Like two scorpions in a bottle’

For those who can recall, the drumbeat against Iran sounds quite similar to the one leading up to the war against Iraq, making it hard to distinguish rhetoric from actual threat.

“If you look at the situation within the region, along Iran’s borders, the Kurdish issue, the Syria crisis, the withdrawal of US troops from Iraq … and talk of potential redeployment of these troops elsewhere in the Gulf … all of these have the potential to draw Iran in one way or another,” said Dourian.

“The Israelis, I can’t imagine, are sitting back and saying ‘Ah, yeah, we’ll wait and see’. I mean, there is an itch to do something, but can they do it alone?”

All the activity in the region, Dourian said, creates potential to a flair-up.

Tensions have run high in the Strait before. In 2008, after months of talk of military strikes against Iran by the US and Israel, Iran threatened to seal off the Strait of Hormuz. US response to the threat was fast and clear: Vice Admiral Kevin Cosgriff, commander of the Bahrain-based Fifth Fleet, said at the time that the US would “not allow Iran to close it”.

“There can be mistakes … people miscalculate and it gets out of hand. Right now, they’re just talking about more and more sanctions against Iran,” said Whipple.

“It’s pretty clear that we’re not going to drop bombs on Iran. It’s not going to do any good. It’ll just set them back a couple of years,” he said, referring the estimated time Iran would need to rebuild any damage done to its nuclear programme.

Furthermore, Whipple said he didn’t think Iran would actually shut down the Strait “unless bombs were being dropped on them”.

“The Israelis are very upset because they have a very small country and one atomic bomb could basically do in a good bit of Israel … Both could almost destroy each other. The Israelis could make every last Iranian gone.”

The danger, said Whipple, is in each country trying to read the signal for an attack from the other.

“It’s like two scorpions in a bottle. They could both kill each other, but who stings first?”

Follow D. Parvaz on Twitter: @ Dparvaz

Source: Al Jazeera