Iranian oil boycott by the EU?

[biffvernon]

It's handy to have some spare scapegoats lined up.. When everything goes pear-shaped we can blame Iran and won't have to tell anybody about peak oil... for a little while longer.

[Aurora]

Huffington Post - 23/01/12

Oil prices rose above $110 per barrel on Monday morning amid an ongoing dispute over Iran's nuclear programme, with Tehran threatening to close the Strait of Hormuz in response to Western sanctions.

The passage of a flotilla of Western warships through the straits marks a further escalation in tensions between Iran and the US and the EU.

European leaders met on Monday morning to discuss a possible embargo on Iranian oil exports.

The benchmark Brent Crude contract breached $110 per barrel in trading on Monday morning in London, before slipping back slightly to around $109.50.

Oil prices have been kept in check by fears that demand may be about to decline. The continuation of the eurozone crisis and the real possibility that the world economy could be on the verge of sliding back into a recession suggest that industrial production, and hence demand for oil products, could fall.

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[Adam1]

Good article in today's Guardian:

http://www.guardian.co.uk/world/2012/ja ... o-mean-war

The decision to impose an EU oil embargo on Iran, agreed on Monday by European foreign ministers, sets a potential bomb ticking, timed to detonate on 1 July.

On that day, according to the package of measures on the table in Brussels, Europe will stop importing oil from Iran, about a fifth of the country's total exports. At about the same time, US sanctions targeted at the global financing of Iran's oil trade will also kick in. Iran could still export some of its oil to Asia, but at big discounts.

Unlike previous sanctions on Iran, the oil embargo would hit almost all citizens and represent a threat to the regime. Tehran has long said such actions would represent a declaration of war, and there are legal experts in the west who agree.

The threat of an immediate clash in the Gulf appeared to recede over the weekend when the USS Lincoln aircraft carrier and its task force, including the British frigate HMS Argyll and a French warship, travelled through the strait of Hormuz without incident. This was despite warnings earlier this month from the Iranian Islamic Revolutionary Guard Corps (IRGC) that it would oppose the return of a US carrier to the region.

But tensions are almost certain to build again as the effective date of the oil sanctions approaches. The US has already begun beefing up its military presence in the region, and the IRGC is planning new naval war games next month. Rear Admiral Ali Fadavi told the Fars news agency earlier this month that the upcoming exercises, codenamed "the Great Messenger", would be different from previous war games, without going into detail.

Iran's oil supply

The strait of Hormuz is the kink in the hose of the Gulf's oil supply to the world. A small amount of pressure can have a disproportionate effect, sending world crude prices soaring and starving the world's oil-dependent economies.

At its narrowest point, between the Oman peninsula and the Iranian islands off Bandar Abbas, the strait is 20 miles wide, but the channels down which more than a third of the world's ocean-borne oil flows – 17m barrels – are even more tenuous. The tanker lanes going in each direction are just 2 miles wide in parts, through the deep water off Oman and then again, further west, inside Iranian territorial waters.

This is where oil tankers are most vulnerable to an Iranian attempt to turn off the global petrol pump. It was enough for an Iranian official to simply raise the prospect of closing the strait, in retaliation for the threat of sanctions, for the world price of crude to rise to $115 (£74) a barrel. Maintained over the long term, that is costly enough to strangle any hint of a global economic recovery.

That is what makes Iranian naval action in the Gulf such a potent weapon. But it is a decidedly double-edged one, potentially more lethal to Iran than its adversaries. For, while Saudi Arabia can bypass the strait by pipeline, all of Iran's oil terminals are west of the choke point. Iran would cut off its own lifeblood, which accounts for more than 60% of its economy.

Furthermore, the US has made clear that interruption to sea traffic in the Gulf would be a "red line", triggering an overwhelming military response in which Iran's nuclear facilities would be on the target lists. Until now, the US military has ruled out strikes on the nuclear programme, as the costs of starting a war with Iran outweigh the gains of setting the programme back, in defence secretary Leon Panetta's estimation, one or two years at most. But if the US was going to war anyway over oil, that cost-benefit analysis would change.

So closing the strait outright would be – if not suicidal – an exercise in extreme self-harm for Iran. But the choice facing Tehran is not a binary one.

There is a spectrum of options falling well short of total closure; forms of harassment of the oil trade that would drive the price of crude up and keep it up, very much to Iran's benefit, but fall short of a casus belli for war. However, exercising such options requires subtlety and fine judgment on all sides and that is by no means a given.

In a period of sustained high tension, an over-zealous Iranian Revolutionary Guards commander could seize his moment to start a war, or a nervous American captain, his vessel just seconds from Iran's anti-ship missiles, could just as easily miscalculate. The last time Iran and America played chicken in this particular stretch of water, in 1988, a missile cruiser called the USS Vincennes shot down an Iranian Airbus, killing 290 civilians including 66 children.

The shadow of Iran Air 655 hangs over the current standoff, as a reminder of how even the world's mightiest and most advanced militaries cannot necessarily control a situation in which tensions have been allowed to escalate.

US military options

There is no doubting the overwhelming firepower at America's disposal. The US Fifth Fleet, whose job it is to patrol the Gulf, is expected to be beefed up from one to two aircraft carriers. Meanwhile, as it has pulled its troops out of Iraq, the Pentagon has quietly boosted its army's presence in Kuwait. The Los Angeles Times reported that it now has 15,000 troops there, including two army brigades and a helicopter unit. The US is also bolstered by the significant naval presence of its British and Gulf allies.

The Iranian military looks puny by comparison, but it is powerful enough to do serious damage to commercial shipping. It has three Kilo-class Russian diesel submarines which run virtually silently and are thought to have the capacity to lay mines. And it has a large fleet of mini-submarines and thousands of small boats armed with anti-ship missiles which can pass undetected by ship-borne radar until very close. It also has a "martyrdom" tradition that could provide willing suicide attackers.

The Fifth Fleet's greatest concern is that such asymmetric warfare could be used to overpower the sophisticated defences of its ships, particularly in the narrow confines of the Hormuz strait, which is scattered with craggy cove-filled Iranian islands ideal for launching stealth attacks.

In 2002, the US military ran a $250m (£160m) exercise called Millennium Challenge, pitting the US against an unnamed rogue state with lots of small boats and willing martyr brigades. The rogue state won, or at least was winning when the Pentagon brass decided to shut the exercise down. At the time, it was presumed that the adversary was Iraq as war with Saddam Hussein was in the air. But the fighting style mirrored that of the Iranian Revolutionary Guard.

In the years since, much US naval planning has focused on how to counter "swarm tactics" – attacks on US ships by scores of boats, hundreds of missiles, suicide bombers and mines, all at once.

"Every couple of weeks in Washington you can go to a different conference on swarming," said Sam Gardiner, a retired US air force colonel who has taught strategy and military operations at the National War College. "War games have shown that swarming, missiles and mines all together put a strain on the capacity of ships to defend themselves. Your challenge is how to protect your minesweepers from swarming techniques."

One of the US naval responses has been to develop a new kind of fighting vessel, the littoral combat ship (LCS), tailor-made for countering Iran's naval tactics. The LCS is sleek, small and agile with a shallow draft and high speeds, allowing it to operate along island-pocked coastlines.

At the low-tech end of the scale, the Fifth Fleet is reported to have deployed a significant number of dolphins trained to seek out mines.

Ultimately, the US response to swarming will be to use American dominance in the air and multitudes of precision-guided missiles to escalate rapidly and dramatically, wiping out every Iranian missile site, radar, military harbour and jetty on the coast. Almost certainly, the air strikes would also go after command posts and possibly nuclear sites too. There is little doubt of the effectiveness of such a strategy as a deterrent, but it also risks turning a naval skirmish into all-out war at short notice.

Iranian tactics

For that reason, most military analysts argue that if Iran does decide to exact reprisals for oil sanctions, it is likely to follow another route. Gardiner believes the most likely model will be the "tanker war" between Iran and Iraq from 1984 to 1987. The aim would be to raise insurance premiums and other shipping costs, and so boost oil prices as a way of inflicting pain on the west and replacing revenues lost through the embargo.

"They wouldn't necessarily do anything immediately. If they do what they did in the tanker war, a mine would be hit and it wouldn't be clear exactly how long it had been there. Things like that push up the price of oil. People talk about a spike in oil prices, but it might be more like a plateau," Gardiner said.

"The answer is not to escalate. You start protecting tankers and searching for mines."

Even if Iran decides on retaliation, there is no reason for it to be confined to an immediate response in the strait. It could target the oil price with acts of sabotage aimed at Arab state oil facilities along the southern shore of the Gulf, or western interests could be targeted anywhere around the world, months or years after the imposition of an embargo.

Adam Lowther, of the US air force's Air University, pointed out recently on the Diplomat blog that Iran's "ministry of intelligence and national security (MOIS), Iran's espionage service, is among the most competent in the world".

"Over the past 30 years, MOIS agents have successfully hunted down and assassinated dissidents, former officials of the shah's government, and real or perceived threats to the regime. MOIS is still capable of carrying out assassinations, espionage, and other kinetic attacks against government and civilian targets. The spy service is also likely to have covert agents in the United States," Lowther said.

Ehsan Mehrabi, an Iranian journalist specialising in military and strategic issues who recently left the country, wrote on the Inside Iran website: "I recall a famous Iranian idiom that was quite popular among the military officials: 'If we drown, we'll drown everyone with us'. They were pretty clear about their intention. If attacked by a western power, the war would not be contained within the Iranian borders. The entire world would become Iran's battleground – at least this was their thinking."

Obama administration officials believe that last year's Washington bomb plot, in which Revolutionary Guard officials are alleged to have planned to kill the Saudi ambassador to the US by blowing up his favourite restaurant in the American capital, could have been an attempt to settle scores for some past incident.

Bruce Riedel, a former senior CIA official said recently at a seminar in Washington organised by the Atlantic Council: "One of the ways Iran can hurt us which is not often talked about is Iranians' capacity to hurt us in Obama's war, in Afghanistan. The Iranians are already superbly placed to make the war in the Afghanistan – which is already difficult – impossible."

All these options however represent high-risk strategies, fraught with risks of miscalculation. In the tanker war scenario, maintaining the line between war and peace would, in effect, be delegated to relatively junior officers, forced to make high-stakes decisions in a matter of seconds, the exact set of circumstances that led to the 1988 Airbus disaster. Even if Washington and Tehran remain determined to avoid an all-out war, with every passing month there is a rising chance of one breaking out by accident.

[Aurora]

The Independent - 28/01/12

Israel warns time is running out before it launches strike on Iran.

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The sabre rattling seems to be getting louder.

[UndercoverElephant]

Surely Iran holds the Ace of Spades in this game though. The rest of the world actually needs its oil. If there is a major, long-term disruption to Iranian oil exports, then we are about to leave the plateau behind and start the Long Descent.

[biffvernon]

If the Strait of Hormuz closes we fall off a cliff after about six weeks.

Splat.

[Aurora]

If the Strait of Hormuz closes we fall off a cliff after about six weeks.

Splat.

Dire Straits man!

http://www.youtube.com/watch?v=1iCTt2ZfcAM

[biffvernon]

Heavy Fuel. Very good!

[Potemkin Villager]

Whatever views we may have from the outside looking in we should bear in mind that the life experience the average Iranian is experiencing at the moment is not a bundle of laughs despite whatever oil they have remaining and the governmental level brinkmanship being played out.

This sounds like an example of what may be heading down the tracks for us, i.e. Europe and England as well. I suspect many of the assertions in the article may need to be taken with a pinch of salt but the overall picture is grim.

(from FT)

Iran tries to end widespread economic panic
By Najmeh Bozorgmehr

Following accusations of “treason” from a prominent parliamentarian, Iran’s government has made its boldest attempt yet to end the economic panic sweeping the country.

With citizens stockpiling food, gold and foreign currencies amid rapid inflation and currency devaluation, the Iranian economy minister announced on Wednesday that deposit interest rates at local banks would be increased to 21 per cent.

The move came a day after Ahmad Tavakkoli, a well-known member of parliament, said that if “inefficiency” was not to blame for inflation running at more than 20 per cent and the rial devaluing by 30 per cent in a month, then it was a case of “treason” that required urgent intervention.

Boosting deposit rates is the latest sign that Iran’s economic crisis – caused by international isolation and domestic mismanagement – is prompting serious concerns at the heart of the government.

Although numbers are hard to come by, many believe the economy will slide backwards in the coming year. Iranian analysts have been quick to take issue with economic forecasts that predict the economy will grow in 2012.

The World Bank, in a January update to its Global Economic Prospects report released last week, projected Iran’s gross domestic product to grow 2.7 per cent in 2012, down from the 3 per cent growth it predicted in mid-2011.

But those watching the economy doubt even that the lower target is achievable at a time when the state faces significant struggles on two fronts: unprecedented international pressure over its nuclear programme and intense domestic political infighting.

“The prediction is based on the official figures the World Bank receives from Iran’s government, which do not reflect Iran’s economic situation,” says one analyst.

The situation is dire. Iran’s central bank has refused to release economic growth figures since 2008, with observers saying the bank is avoiding the embarrassment that poor numbers would cause Mahmoud Ahmadi-Nejad, the president. Despite windfall oil revenues – estimated by domestic media to have exceeded $700bn since 2005 – the regime has struggled to revive a moribund economy.

One reform-minded economist believes investment, a crucial element of economic growth, is unlikely to increase while Iran faces deepening international sanctions. Constant tightening of sanctions by western powers has gradually choked crucial sectors such as oil and gas, and made banking transactions lengthy and costly.

The European Union increased measures this week, barring members of the 27-nation bloc from buying Iranian oil from July 1. Iran’s insistence that it will not bow to foreign pressure has deepened the conviction among many that no settlement will be achieved in the near future.

The sense that the crisis will not be resolved is reflected in the local hard currency market, where the Iranian rial has fallen about 30 per cent over the past month and 49 per cent compared with a year ago, devastating the savings of the country’s middle class.

Bankers believe the depreciation has been aided by the high costs of bringing foreign currency into the country, with sanctions forcing currency deals to go through informal channels that charge high commissions.

Political and economic analysts assert, however, that the government of Mr Ahmadi-Nejad could have done more to curb the fall of the rial. Some say deposit interest rates should have been increased earlier, to keep more money in the local banking system and deter conversion of rials into foreign currency and gold.

The government has instead directed the blame at economic middlemen for creating a “bubble” in foreign currencies and gold, with the precious metal being sold locally at premiums of up to 30 per cent above the global market price.

Failure to intervene in the market has fuelled suspicion in anti-government circles, including the parliament, that while Mr Ahmadi-Nejad’s government may not have started the rial plunge it may be quietly participating in it, to try to cut a massive budget deficit estimated by analysts at $30bn-$50bn.

A big factor in the deficit is the government’s monthly obligation to make cash payments to most of Iran’s 75m-strong population, in compensation for tens of billions of dollars in subsidies on basic commodities that the government stopped paying a year ago.

The government has announced it may soon reduce the number of eligible recipients of the IR455,000 ($40) monthly payment, excluding those who own property and cars, but increasing the amount paid to the most needy.

Political analysts say upcoming parliamentary elections in March mean the government is promoting populist economic policies over longer-term solutions. The election results will be particularly significant in the build-up to what is expected to be a tightly contested presidential poll in 2013.

“The anti-government fundamentalists first welcomed the currency crisis to defame the supporters of Ahmadi-Nejad in the next election, by blaming the government for the rise in hard currency rate and gold coin prices,” says one political analyst.

[Aurora]

BBC News - 30/01/12

The dispute between Iran and the Western economies has escalated after Tehran warned it will stop oil sales to "some countries."

Rostam Qasemi, Iran's oil minister, said the curbs will be implemented soon but did not mention specific countries.

The warning comes just days after the European Union (EU) agreed to stop importing Iranian oil from 1 July.

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[biffvernon]

There may be some sense in this article about the role of the petrodollar in the the turn of the tide of the affairs of men:

http://rt.com/news/iran-attack-us-allegations-243/

As tensions between the US and Iran heat up, author Michael T. Winter believes the main reason behind America’s harsh stance is Tehran’s move to seek an alternative to the dollar as an oil currency.

[RenewableCandy]

Yes I seem to remember Saddam was contemplating doing the same (as it mentions). I think if Iran really had wmd then the USA wouldn't be doing any of this, it'd just keep schtum

I wonder if China, who presumably want Iran to stay "together"-enough to extract and export oil, could threaten to sell all their dollar-related holdings?

[Aurora]

The Independent - 04/02/12

Evidence is mounting that Washington believes an Israeli attack on Iran is now only a matter of time.

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[emordnilap]

...the main reason behind America’s harsh stance is Tehran’s move to seek an alternative to the dollar as an oil currency.

Yes I seem to remember Saddam was contemplating doing the same (as it mentions).

And then there's Gadaffi's dinar plans.

Sheer coincidence, I'm sure.

[hodson2k9]

...the main reason behind America’s harsh stance is Tehran’s move to seek an alternative to the dollar as an oil currency.

should change that to "the main reason behind the federal reserve's harsh stance..."