Jordan Weissmann writing for “The Atlantic” has asked “Will the Iran Sanctions Spark an International Oil Crisis? In the wake of damaging report concerning Iran’s nuclear weapons capability from the global nuclear watchdog last November, tensions have climbed in the Middle East. The International Atomic Energy Agency (IAEA) has confirmed on January 9, 2012 that Iran had begun producing 20 percent enriched uranium at Fordow, a fuel enrichment plant buried deep underground near the holy city of Qom.
According to Olli Heinonen, a nuclear expert and a former senior official with the IAEA, ability to enrich uranium at the level of 20 percent makes a country capable of producing nuclear weapons. Based on the latest IAEA report on current Iranian capability of uranium enrichment, the country may assemble a nuclear bomb by the end of 2012.
In his commentary carried by Foreign Policy entitled “The 20 Percent Solution” Olli Heinonen says that Iran continues to produce 20 percent enriched uranium despite the fact this exceeds country’s civilian needs. This fact counters the claim of the Iranian leadership that Iran is pursuing peaceful development of nuclear power. Moreover, this revelation sits at odds with President Mahmoud Ahmedinejad’s acknowledgement in September 2011 that Iran’s enrichment of 20 percent uranium does not make sense.
As the November, 2011 report of IAEA on Iran’s nuclear program suggests Iran should address the global concerns that there is no military dimension to its nuclear policy. Iran has not clarified that the operation of nuclear reactors is for peaceful purposes. Iran’s failure to do so can be considered their non-fulfillment of obligations of the Nuclear Non-Proliferation Treaty (NPT), to which they are a signatory. Encouragingly, the Iranian officials have given green signal to the IAEA, whose monitors are scheduled to visit the country on January 28, 2012 to discuss about possible application of military dimension to their nuclear program.
Backed by the recently-issued monitoring report of the International Atomic Energy Agency, and pressed by the U.S. Congress president Obama has on December 31, 2011 signed into law the toughest American sanctions against Tehran, which aims to cut off the country’s petroleum revenue by penalizing financial institutions that do business with the Iranian central bank.
This new set of sanctions adopted by the Obama administration is intended to put a clamp on Tehran’s more than 2 million barrels a day of crude exports. Such exports provide the Iranian government as much as $ 81 million a year in revenue.
Sanctions can work if supported by major oil importing countries around the world. The European Union looks positive to U.S. sanctions on Iran, although final decision on this issue is still awaited. In a Foreign Policy commentary “The Unexpected Logic of the EU’s Ban on Iranian Oil” Matthew M. Reed has observed “But EU’s recent agreement in principle to gradually ban Iranian crude oil imports has brought to a head a long-running dispute between Europe’s economic and foreign ministers”. Naturally, economic ministers feared politicizing oil because any disruption could hurt fragile economies.
Japan ranking second among the Asian countries in terms of Iranian oil imports has indicated to reduce the quantity in response to American appeal for tightening sanctions against Iran. Japanese Finance Minister Jun Azumi as quoted in “Do Israelis really want to bomb Iran”? by Dalia Dassa Kaye of Rand Corporation, has said “We wish to take planned and concrete steps to further reduce the share , which now stands at 10 per cent.
But China as the biggest importer accounting for 20 percent of Iranian oil exports has shown reluctance to toe the American line. Unsurprisingly, in the most recent meeting between the U.S. Treasury Secretary Timothy Geithner and the Chinese Premier Wen Jiabao, China has said ”it would not connect its domestic oil trading with the international Iranian nuclear crisis.”. Such announcement speaks for itself casting doubt on the efficacy of new sanctions against Iran.
More troublingly, Iran has become bellicose in its threat of even shutting down the vital waterway “Strait of Hormuz” that separates the Persian Gulf from the Gulf of Oman. Iranian first vice president Mohammed-Reza Rahimi last month threatened saying “If they impose sanctions on Iran’s oil exports, then even one drop of oil cannot flow from the Strait of Hormuz”.
Should this threat be realized as U.S. imposed sanctions have been in operation, the situation in the Gulf will likely escalate to a very dangerous level. Strait of Hormuz, through which about 16 million barrels of oil pass through every day constituting one fifth of world’s total crude oil exports, will be the most important choke point at a time when global economy is weakened significantly.
If worse becomes worst and Iran is provoked to close the Strait of Hormuz and military confrontation occurs between the country and the U.S., it will bring about dire consequences not only for the region but for the entire world. Already the oil prices have started rising following imposition of sanctions by the Obama administration. The rising oil prices may reach $150 per barrel if the narrow waterway in the Gulf is shut down by Iran in retaliation.
Some commentators and advocates of sanctions against Iran have tried to reassure that the reduced oil exports of Iran might be offset by flowing Libyan and Iraqi oil in the market. Even International Energy Agency has talked assuredly that the oil reserves might be used to meet the emergency. It is difficult to see how the faltering global economy will weather the storm in case situation turns out to be perilous.
Skyrocketing energy prices may not be inconceivable when Iran, as the world’s third largest exporter of crude oil, is subjected to harsher sanctions. Likely military clashes in the Persian Gulf may cause irreparable damage by pushing the world to a new recession. Countries like Nepal, which wholly depends on imported oil for its domestic and industrial consumption, will face more hardship. It is hoped that diplomacy works to resolve the nuclear crisis and remove the sanctions regime to prevent another war, which gradually looks probable.