Iran's Game of Chicken Regarding Oil Production

There is no certainty that sanctions wouldn't strengthen the current regime, which would present them as a Western ploy against Iran, calling on the public to rally around the government.

A photo of Dr. Zvi Bar'el.
Zvi Bar'el
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A photo of Dr. Zvi Bar'el.
Zvi Bar'el

Iran's representative to the Organization of the Petroleum Exporting Countries, Mohammad Ali Khatibi, warned the Gulf States against increasing their oil production to compensate for the decrease in Iranian oil production, on Sunday, saying "they will be held responsible for the consequences."

Khatibi's masked warning continued the line adopted lately by Iranian senior officials who said that "if Iranian oil would not be allowed to exit the Persian Gulf, then not a drop of oil from the other Gulf States would be allowed out as well," and that "it's very easy for Iran to block the Strait of Hormuz."

Iranian naval vessels near the Strait of Hormuz, Jan. 3, 2012.Credit: Reuters

Iran indeed has the military capability to damage oil tankers in the Gulf, or strike oil facilities in neighboring countries such as Kuwait, the United Arab Emirates, Saudi Arabia and Qatar.

But despite these ominous warnings, Saudi Arabia - Iran's main rival - has already declared that in the case of sanctions against Iranian oil exports, it would increase its oil production to make up for the shortfall,.Thus, they have calmed fears of a dramatic price hike.

Saudi Arabia produces roughly 10 million barrels per day, while Iran exports some 2.5 million barrels a day. According to Saudi Oil Minister Ali al-Naimi, his country can easily produce 12.5 million barrels daily to compensate for the shortage.

Threats aside, Iran is also trying to prevent sanctions being imposed by a diplomatic maneuver, declaring it would allow more officials from the International Atomic Energy Agency to inspect its nuclear facilities and see for themselves that it has no intention of developing nuclear weapons.

The inspectors are due in Iran by the end of this month, and any resolution involving sanctions may be delayed until after the visit.

European Union officials are set to discuss sanctions on January 23, mostly barring imports of Iranian oil, and perhaps forbidding deals with The Central Bank of Iran.

The EU is thus expected to join U.S. President Barack Obama, who declared sanctions on Iran last month.

A European initiative could come under strong opposition from some of the European states dependent on Iranian oil, or those who wish to see their Iranian debts paid.

Greece, for example, which is undergoing a deep financial crisis and importing a third of its oil from Iran, would not easily join sanctions that would put its economy in further peril, considering the favored conditions it receives from Iran.

Italian oil company ENI owes Iran large sums for drilling rights, paying them off with oil.

Spain is dependent on Iranian oil, and its economic situation isn't rosy enough to allow it to pass by Iran's favorable purchase terms.

And even if the European countries agree on sanctions, these would encumber Iran but not paralyze its economy without the participation of China, South Korea, Japan and Turkey.

Turkey and China have no intention of joining the sanctions, while Japan and South Korea are still examining the possible ramifications of joining the move.

Iran could easily offer these countries - especially China - attractive prices that would neutralize the European sanctions.

As for the sanctions on its central bank, Iran is set to use alternative monetary routes such as Russian or Turkish banks, which are already used to transfer revenues.

The move to apply swift sanctions also takes into consideration the upcoming elections to the Iranian parliament, scheduled for the beginning of March.

There is no certainty that the planned move would not have the opposite effect, and actually strengthen the current regime, which would lose no opportunity to present the sanctions as a Western ploy against Iran, calling on the public to rally around the government.



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