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Air Strikes Against Iran Can Push the Price of Oil to $250 per Barrel

Posted: 08/11/11 12:37

The International Atomic Energy Agency (IAEA) is publishing on Wednesday a new report revealing advanced Iranian design for a nuclear warhead developed with the help of former Soviet scientists, according to nuclear experts.

The report by the (IAEA) will identify a suspect site where warhead components have been tested. This report is considered the most detailed presentation to date of its evidence for recent nuclear weapons research in Iran.

The report will cause a rise of tensions in a region that is already witnessing upheavals and revolutions. Israel, the US and the UK are considering military options aimed at delaying and hampering the Iranian nuclear programme. Israeli officials are telling western capitals that the report represents the "last chance" for a peaceful resolution to the Iranian nuclear crisis.

Iranian Foreign Minister Ali Akbar Salehi has already dismissed the report as a fabrication to justify military strikes against Iran. It is not yet clear whether the IAEA evidence will convince Russia and China to abandon their opposition to further economic sanctions, let alone countenance air strikes against targets in Iran.Russia has already warned that any military strikes against Iran would have very serious consequences.

In 2006 the Iranian leadership announced the successful enrichment of uranium. The UN Security Council passed several resolutions on Iran insisting that it ends its enrichment activities.

In response the Iranian leadership unwisely issued belligerent statements indicating a high degree of anxiety and fear that it might be the target of attacks by US and Israel.

The objective was two-fold. The first is to mobilise the Iranian public against any possible external aggression and the second is to warn potential aggressors. Ayatollah Ali Khamenei, the supreme religious authority and spiritual guide in Iran, attributed the pressures on Iran to US hostility towards Iran since 1979, when the US cut diplomatic relations with Iran in the wake of the 1979 Iranian revolution that saw American diplomats taken hostage for 444 days.

In April 2006 the Islamic Republic News Agency reported the following statements from three Iranian prominent figures; the Expediency Council Chairman Akbar Hashemi Rafsanjani had said "We cannot be intimidated". The Iranian President Ahmadinejad stated his people will not yield to threats from Western States and would continue with its nuclear research program. Ali Larijani, a former foreign policy chief and a leading nuclear negotiator at the time stated ominously that "Iran had chosen the path of resistance until it achieves full access to nuclear energy".

Given the radical nature of the current regime under Ahmadenejad who declared his wish to erase Israel from the Map of the world, there are genuine fears that Iran might pass the weapons to Hezbollah or to Al Qaeda.

What Can Iran Do?

Iran can create problems on several fronts outside Iran, namely in Iraq, the neighbouring Gulf States, chiefly Bahrain, Saudi Arabia and Kuwait, also in Lebanon and the Palestinian territories. It can cripple the world economy through planned disruptions of oil exports. Iran's bravado is based on the assumption that the U.S. is embroiled in the Afghanistan quagmire and is trying to extricate itself from Iraq and is therefore in no mood to enter into a new military conflict, add to that the fact that America relies on the Middle East for more than 25% of its oil.

Outside Iran itself, the regime can cause havoc in Iraq through allies chiefly the Shi'ite militias.
Iran's ability to cause problems in Bahrain, Saudi Arabia and Kuwait cannot be underestimated. The Shi'ite populations of these countries are already agitating for more rights. The United Arab Emirates is a home for 560,000 Iranians who would not stand idle if their country of origin is attacked.

Lebanon is another cause for concern, where Hezbollah and Amal militias rely on Iran for financial and logistical support. Iran's ability to mobilize its long time friend Syria in fomenting unrest in Lebanon through Hezbollah and Amal is limited due to the unrest sweeping through Syria. The Syrian regime is fighting a deadly war against the people to survive. Hezbollah might mount a new campaign of assassinations against individuals and groups deemed to be friendly to the US and France. The other possibility, which cannot be ruled out, is the reactivation of Hezbollah attacks along the relatively quiet northern borders of Israel with Lebanon. Hezbollah has missiles stationed along the Israeli northern borders.

Hezbollah has always been ready to obey and carry out the Iranian and Syrian agendas in relation to Lebanon and Israel.

The most worrying question is whether Iran would be reckless enough to contemplate launching missiles against targets in the neighbouring Gulf oil producing countries to disrupt oil supplies and hurt America. More ominous would be the targeting of Israel which would almost certainly result in retaliation and escalation of the conflict.

Targeting the oil installations in the neighbouring Gulf States and imposing a blockade in the Gulf shipping lanes could push the price of oil to such high levels that make the current price of around $112 per barrel seem cheap. This would slow global economic growth and cause panic in world stock exchanges leading to a world economic recession.

The easiest option for Iran to harm the U.S. is to shut its own oil production and exports. Shutting the Strait of Hormuz can have serious impact on oil prices and the global economy. Over 30% of seaborne oil supplies and 40% of all world traded oil go through the Strait. If Iran blocks the waterway prices could rise to $200 per barrel or $250 per barrel from the current price of $112-$115 per barrel.

This would not be as easy as it sounds, especially if the UN Security Council demands that the shipping lanes in the Gulf are rigorously monitored.

Iran is the second largest oil producer in the Middle East and holds 10% of world reserves.
Some oil analysts believe that supplies of oil are already tight due to South East Asian demand and strong demand in Europe and USA. Kuwait and Saudi Arabia are producing to maximum capacity and they cannot do a lot in the short term.

Russia suffers from chronic infrastructural problems and cannot therefore increase production in the immediate term. Nigeria the producer of high quality light crude (Bonny Light) is not producing to full capacity owing to armed insurgency in the Delta region where the biggest fields are located. Iraq and Libya are struggling to increase production to pre 2003 invasion level in the case of Iraq and pre-revolution levels in Libya.

Hitting Iran nuclear targets is easier said than done, but not impossible. If done, the world must be prepared for the consequences.

 

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