Wednesday, December 28, 2011 - 1:15 PM

Is Iran's threat to close the Strait of Hormuz -- the seaway chokepoint for some 17 percent of the world's daily oil supply -- as empty as its vow to wipe Israel off the face of the Earth? Oil traders by and large think so -- a day after Iranian Vice President Mohammad Reza Rahimi issued the threat, global oil prices were sharply lower.
Traders say the main reason for their non-chalance is the extent of U.S. military forces deployed in the area. The idea is that, if Iran mines the waterway -- which links the Persian Gulf with the Indian Ocean -- or harasses oil tankers with its fast patrol boats (such as the one pictured above), the U.S. Navy will swiftly come to the rescue.
At the Financial Times, Najmeh Bozorgmehr and Javier Blas say we may be witnessing a reflection of Iranian politics ahead of March parliamentary elections.
Yet the characters in this latest Persian Gulf drama are among the most unpredictable on the big geopolitical chessboard. While Iran may very well be simply huffing and puffing, it is not out of the question that it would, as it has before, make trouble for oil traffic in the Strait. If it does, that would be serious stuff because of those who are dispatching the 13 oil and liquefied natural gas supertankers that ply Hormuz every day -- in addition to Iran, they are Iraq, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates.
In his daily note to clients today, Connecticut-based oil analyst Peter Beutel steps away from the machismo of other traders, and notes the stakes should Iran make good on its threat: "Under any scenario, [it] would be a game-changer. It could keep millions of barrels a day from moving out of the Petroleum Gulf -- perhaps as much as 19 million barrels per day -- and would instantly draw all consuming nations into opposition with Tehran. The U.S. and its Arab allies would be compelled to open [the strait] by military force."
I remarked last week on the poor record of sanctions in terms of achieving foreign policy objectives. But the West is hung up because, notwithstanding the lobby that earns a living by urging war with this or that country, there is very little upside, and much in the way of downside, in any military solution. So if you wish to forestall a nuclear-armed Iran, and war is too risky, sanctions are about all there is.
Iran's threat in part is rooted in the latest stages of Western actions following a November update on Tehran's nuclear development. The idea is not to stop Iranian oil sales, in the logic that that would probaby drive up global prices, but to reduce Tehran's crude oil income. U.S. legislation awaiting the signature of President Barack Obama would allow the U.S. to penalize any foreign entity paying Iran for oil, supplementing an already-existing ban on U.S. companies carrying out such transactions. And the European Union says it is on track to vote similar sanctions at the end of next month.
There is something that is vaguely amusing about this kabuki. If the West were truly serious, it would bite the bullet and sanction any legal oil payment to Iran for its 2.4 million barrels a day of exports. The truth is that a lot of this volume would leak onto the market thanks to smugglers, but Iran would have to sell it at a discount, thus losing a lot of its income (its 2010 oil income was about $81 billion).
The National Defense Authorization Act is placing the sanctions on Iran which are FORCING their hand in these issues. Our government is playing with fire and ASKING for World War III by picking a fight with the Iranian Government. This SAME legislation gives our own government the power to detain American citizens indefinitely and without trial for speaking out against this agenda of war-profiteering through causing constant strife and conflict in the Middle East. Join the discussion about how our Government is waging war without public approval and suppressing our Freedom of Speech so far that we are petrified to stand up against them. Speak out with me against Living in this Society of Fear at http://dregstudiosart.blogspot.com/2011/09/living-in-society-of-fear-ten-years.html
Much as North Korea has done, Iran rattles its sabres to keep the West at bay.
The problem is that Iran doesn't have the immensely over sized military or the full backing of China. If North Korea declared a blockade it would raise tensions*. If Iran did it then the U.S and Arab states would have tacit approval from the world to lift the blockade as long as that was all they did.
*Although there isn't much North Korea could actually blockade unless it went to submarine warfare.
North Korea also has another advantage
Seoul is in close proximity to the DMZ, within missile range of Western Japan and upwind from Beijing.
They can do a lot of damage to friends and neighbors if they get silly. North Korea also overplayed its nuclear hand when its big test fizzled a couple of years ago. Their bluff got called already.
I think the greater concern with them now is a North Korean Chernobyl (or Fukushima if you want) than a nuclear attack. Their reactor at Yongbyun is held together practically by duct tape, chewing gum and positive feelings. Its highly doubtful they are regarding safety as a major concern.
It's a fool who still takes the corporate media message as reliable. This article assumes that the people with a vested interest in the oil business are good for their word. They are not. They are in the most despicable technology suppressing business and perpetual war, division and misery game on the planet.
That is not hyperbole it is the truth and you may look at the banks government and media to see the last cabal of liars to dupe our species.
A more articulate look at the history of the deception is here:
http://www.charlesfrith.com/2011/12/somebody-muzzle-dog-silence-is-killing.html
What possible reason could they have in keeping oil prices low? The only possible explanation would be wanting to avoid more recessions across the world and that would be good, something you clearly can't believe a corporation would be.
Ahmadinajad is a mad man with a Phd
We've seen a brazen comments from Ahmadinejad before. They are a few short years from having a bomb, and they know we are scared of the potential WWIII scenario that will almost certainly unfold if they do indeed attack Israel.
http://www.physiciansassistanthq.com/
Is there any reason Iran WANTS to close the Straits of Hormuz?
1. To restrict the oil shipments of its regional rivals in the Gulf to their advantage
2. Its not difficult for them to do.
3. A conflict with its neighbors is great for spurring nationalist sentiments in a flagging regime.
4. The big naval powers which can respond in the region have poor littoral operational capabilities.
Iran earns some $240.0 million a day from its oil exports, translating into roughly $81.00 billion a year in hard-currency funds for its government.
That figure, according to the U.S. Energy Information Administration, accounts for roughly half of Iran's government funding.
In addition, Iran has limited capacity to refine its oil, and must import approximately 78,000 barrels a day of refined gasoline or about 28.0 million barrels per year (or about 1.2 Billion gallons). Indeed, according to the New York Times, in 2010, Iran was providing energy subsidies to Iranians of $114.00 Billion, and retail gas prices at the pump were $1.44/gallon.
All this doesn't even begin to include the amount of food and other imports Iran receives through the Straits.
It seems that the day Iran shuts down the Straits of Hormuz would be the day that the mullahs decide to cut their own throats because Iran cannot afford to subsidize its own military adventurism.
Iranians already went into the streets en-masse back in 2009. Tunisians and Egyptians, fed up with the declines in their respective economies took to the streets this year in the face of rising food prices.
I've read through several years of the O&G headlines (both on FP and your own blog site). You mention that sanctions don't work due to the smuggling factor.
I don't think the volumes involved here, coupled with the countries that surround Iran, would lend weight to that argument, especially when it is Iran that is forcing the closure of the Straits.
So why buy into the idea that Iran is capable of and its government has the ability to survive closing the straits?
Two things are going on here: the first is that I have my own take on events, but like to present others' as well, which is why I publish guest columns by folks with a wholly conflicting view. The second is that Iran is a complicated kettle of fish. If one is resigned to or is unvexed by it being nuclear armed, there is no issue here. However, if one would prefer that Iran not develop nuclear capability, the tools of persuasion are few and highly imperfect. War it seems to me is all but ruled out because of an unacceptably high risk of blowback across the region triggered by Hezbollah and others. So you are left with the alternative of sanctions, which almost never work (Libya's 2003 relinquishment of nuclear ambitions was a rare exception), but if you are going to impose them, there is an upside in doing them seriously.
Iranians already went into the streets en-masse back in 2009. Tunisians and Egyptians, fed up with the declines in their respective economies took to the streets this year in the face of rising food prices. I've foodblog read through several years of the O&G headlines (both on FP and your own blog site). You mention that sanctions don't work due to the smuggling factor.
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