The Escalation: Iran and the West Rediscover Oil as Weapon
Four decades after the 1973 oil shock, Iran and the West are once again embracing oil as a weapon. Tehran is threatening to block the Strait of Hormuz, while the industrialized countries are considering a boycott of Iranian oil. But both sides will suffer if such tactics are used.
Surprisingly enough, supertankers don’t burn very well. Although the crude oil they transport is highly flammable, there is not enough oxygen in their tanks to create an explosive mixture.
On average, 14 of these giant tankers pass through the Strait of Hormuz, located between Iran and Oman, every day. If Iranian President Mahmoud Ahmadinejad actually ordered his forces to fire missiles at one of these tankers, quite a bit of firepower would be needed to set off a Hollywood-style inferno.
But the verbal attacks from Tehran are more than sufficient to set the global markets ablaze.
Last week, prices climbed significantly above the $100-a-barrel mark once again, despite all gloomy economic forecasts. Gasoline prices already reached an all-time high in Germany in 2011. And now the dispute over who controls the Persian Gulf, which has been triggered by Iran’s nuclear policies, is a sign that further escalation is on the horizon.
For a full 10 days, from Christmas Eve until after the beginning of the new year, the Iranian navy held nautical maneuvers in an area traversed by the most important route in the international oil business. About a third of all the crude oil shipped worldwide passes through this bottleneck. Vice President Mohamed Reza Rahimi warned that if the West imposed further sanctions against Iranian oil exports, Tehran would not allow “a drop of oil” to pass through the Strait of Hormuz.
But sanctions are precisely what the industrialized countries have in mind. On New Year’s Eve, US President Barack Obama signed legislation that prohibits anyone who intends to do business with the United States in the future from having any dealings with Iran’s central bank. The law is intended to prevent Tehran from making any oil-related transactions.
It became clear last week that when the foreign ministers of the European Union countries meet later in January, they could very well tighten the sanctions even further, so that the 27 member states will no longer buy a single barrel of oil from Iran. French Foreign Minister Alain Juppé assured that the negotiations over the sanctions are “on the right track.”
A New Energy Conflict
Oil is being used as a weapon once again, but this time it isn’t just one of the exporting nations which is using it — the industrialized nations are also turning it into an instrument against Iran. A duel of the boycotters is taking shape, a new energy conflict between a supplier and its customers, waged with the tools that each side has at its disposal to exert pressure on the other. The only question is whether their instruments — embargos and sanctions — are in fact effective. What exactly can the oil weapon do?
Steffen Bukold, the author of a paper about the oil business, has noticed a remarkable paradox. According to Bukold, the public still perceives the embargo as the most important type of crisis. “But when you look at its actual effect on the oil market to date,” says the expert, “it is the least important.” History supports Bukold’s claim.
The oil weapon was first used in the summer of 1967, shortly after the beginning of the Six-Day War. At the time, Arab oil ministers discussed ways to punish the West for Israel’s air strikes on targets in Egypt. Without further ado, the Arab nations decided to stop selling oil to the United States and Britain.
But the embargo was relatively ineffective, because the Soviet Union immediately offered to fill the gap in supply. Besides, the loss of revenue was so painful for the Arabs that they lifted the embargo after just a few days. The first use of the oil weapon had failed.