Thursday, June 08, 2006

The Oil Weapon

Ilan Berman at NRO has an interesting discussion of Iran's threat to cut off a significan't part of world oil supplies if it is attacked.

For all of its energy clout, the Islamic Republic is not impervious to economic countermeasures. The vast majority (80 to 85 percent) of Iran’s export earnings, as well as one half of its budget and a quarter of its gross domestic product, currently derives from energy sales. As a result, over the past two years Iran has reaped a staggering fiscal windfall, amounting to dozens of billions of dollars, from the rising price of world oil. But Iran’s single-sector economy is deeply dependent on foreign direct investment to maintain this output. If they were to be applied consistently and multilaterally, therefore, measures that reduce the foreign capital flowing into Iran’s energy sector have the ability to cause Tehran some serious economic pain.
Berman goes on to talk about how even more serious unrest than is happening now could be triggered.
In particular, Iran is severely susceptible to domestic pressure. Despite massive oil exports (some 2.5 million barrels a day), Iran currently imports a third or more of its refined petroleum products from abroad, at a cost of over $3 billion annually. These imports are not simply surplus; according to some estimates, Iran maintains just 45 days worth of gasoline domestically. Since all politics is ultimately local, this suggests that the inevitable economic squeeze that would accompany an Iranian energy play is likely to reverberate within Iranian society in the form of gasoline shortages and steep price hikes at the pump. And that, in turn, could create major domestic problems for Iran’s ayatollahs.
He goes on to note that Iran's oil custumers would not be very happy with a cut off of oil supplies. As usual, click the link, read the rest.

More on Iran's economic situation.

To keep up on unrest in Iran visit Gateway Pundit and Regime Change Iran.

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1 comment:

jj mollo said...

I think we should take their threat as an opportunity and help them implement it by cutting off the flow of Iranian oil ourselves. Say, blow up an Iranian pipeline every time such an event happened in Iraq. The price of world oil would go up, but the windfall would accrue only to those countries, some of them allies, who were able to produce. We would suffer very little, although people would gripe.