Uncertainty reigns: Iran, the US and oil sanctions
Thursday, July 26, 2018
After President Trump pulled the U.S. out of a nuclear pact with Iran in May, the White House is now threatening Iran with oil sanctions that would take effect in early November.
What is at stake in and out of the U.S.? And how would this affect the European Union, Britain, France, Russia, China and Germany, which remain in the Iran pact?
A brief look back can be instructive, according to Trita Parsi, founder and president of the National Iranian American Council in Washington, D.C. "I’m very worried that the pattern that we’ve seen before," he said, "which is that when the United States escalates, the Iranians escalate, as well — and they have made threats of saying that if they cannot sell oil and they cannot ship oil out of the Strait of Hormuz, then no one can, threatening to close it."
The U.S. Fifth Fleet is in Bahrain to ensure the flow of oil tankers through the Strait of Hormuz in the Persian Gulf. "OPEC's top five exporters (are) inside the Gulf," Deutsche Welle reports.
In Parsi’s view, a kind of foreign policy déjà vu between Iran and the U.S. is unfolding. He continues, warning that Iran oil sanctions could spark "a devastating effect on the global economic markets."
The interconnectedness of the global economy means that Iran oil sanctions have wide-ranging impacts.
For example, China is the top buyer of Iranian oil. China is also in a trade war with the U.S. now. That is a volatile mix.
Michael T. Klare is an author and professor at Hampshire College. "When it comes to Iran and oil policy," he told MultiBriefs, "President Trump has two conflicting priorities. On one hand, he seeks to isolate Iran and punish its leadership by trying to curtail its oil exports (and thus its main source of foreign income)."
That curtailment of oil revenues is a threat to Iran’s rulers. Defunding that nation’s oil revenues would have the effect of reducing public services and spurring domestic tumult. Such a scenario would destabilize Iran and the Middle East region generally.
Trump also seeks to keep gasoline prices from rising and causing pain for American consumers (and possibly spurring them to buy hybrids or electric cars). "He is trying to square the circle, pressuring allies like India and Japan to stop buying Iranian oil while at the same time pressuring the Saudis to pump more oil," said Klare.
A foe of Iran, Saudi Arabia is a major crude oil producer. With U.S. support, Saudi Arabia is fighting the Houthis, accused of being Iranian allies, in Yemen, where a cholera epidemic is devastating youth, according to the Save the Children charity.
Will the president’s strategy of sanctioning Iran succeed? It is too early to tell. Two things are clear, though.
First, businesses, domestic and foreign, dislike geopolitical uncertainty over oil prices and supply. In contrast, stability makes for better predictability.
Last, a drastic cut in Iran’s oil exports that the White House seeks could slow down global economic activity in part by increasing gas prices. A scarcity of oil does not lower its price.
A U.S. Energy Information Administration report sheds light on links between energy and growth. The EIA "estimates global oil consumption-weighted gross domestic product (GDP) growth for 2018 will be at its highest rate since 2012. Greater GDP growth has the potential to increase oil consumption beyond forecasted levels, which could put upward pressure on crude oil prices, and simultaneously drive systemic market movements in equities, bonds, and other commodities … often correlated with movements in crude oil prices."
In the war of words between the political leaders of Iran and U.S., uncertainty reigns.
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