US Aims to Crush Iranian Oil Sector, While Avoiding Harm to Oil Markets?

The Obama administration wants to sanction Iranian oil without negatively effecting global oil markets. No, seriously:

The White House said on Thursday the Iran sanctions proposed by Congress and signed by President Barack Obama should be enforced in a way that does not hurt the United States’ allies or disrupt oil markets.

“We want to make sure that the implementation of those sanctions is handled in a way that does not inadvertently do any harm to our allies or to the oil markets,” White House spokesman Jay Carney told reporters.

But a recent Energy Brief from the Council on Foreign Relations concludes that is wishful thinking. The U.S.’s efforts “to sanction Iran’s crude oil exports,” says the CFR report, “has already pushed Iran to threaten “to disrupt the flow of oil through the Strait of Hormuz, the world’s most important oil chokepoint, through which nearly seventeen million barrels per day (mb/d), or about 35 percent of seaborne traded oil, moves.”

The escalation has already added a significant, perhaps five to ten dollars per barrel, risk premium into the price of crude oil. The prospect of any further “Iran premium” on oil prices deeply troubles U.S. and EU officials, given the fragile global economy. Currently, they are designing sanctions to minimize the risk that Iran’s exports will be reduced, since that would raise global oil prices. Instead, sanctions would aim at reducing what Iran earns on its sales. Nevertheless, market participants are concerned that the standoff will escalate beyond limited sanctions and disrupt physical supply at a time when the Organization of Petroleum Exporting Countries’ (OPEC) spare capacity is insufficient to comfortably offset the loss.

The report lays out four scenarios and the deleterious effects each of them would have on oil markets and the economic outlook:

  • Partial sanctions on Iran’s crude oil exports; Iran harasses gulf production and shipping
  • Complete or nearly complete sanctions on Iran’s exports
  • An Israeli or U.S. attack on Iran’s nuclear facilities, but no oil infrastructure damage or disruption
  • A regional conflict, including temporary closure of the Strait of Hormuz

All of these possibilities carry dangerous consequences generally, and specifically on oil markets. The last scenario, the report says, “would dwarf any disruption in modern history.” So much for Obama’s cautious approach.

8 thoughts on “US Aims to Crush Iranian Oil Sector, While Avoiding Harm to Oil Markets?”

  1. The Price of Oil needs to go up again. That's the grand plan.

    The Obama administration are intent on making that happen. If they encounter a security crisis during the process, it will probably boost their chances against the GOP, for 2012.

    The banks, hedge funds and speculators need something to churn again. Oil is their favorite commodity. And it has side benefits… Fed gets to sell more treasuries. US dollar stays strong.

    War is the most amoral and iniquitous way to make money and retain power. But we don't live in an enlightened world. We live in a world where the most evil, unethical, dishonest and greedy people are still pulling the strings.

    1. Yep, just like in 1972-73, when the Seven Sisters were over the barrel and needed a four hundred percent increase in the price of oil to make their investments profitable. Lo and behold, war brokeout between Egypt and Israel and when the US backed Israel, OPEC imposed an embargo on exports to the US. At the same time Henry Kissinger was working out a deal whereby all of OPEC's oil exports would be denominated in US dollars, thus the era of petrodollar was born. The sharp spike in the price of petroleum enabled the oil companies to leverage inflation and made many of their projects profitable overnight, such as the Alaska pipeline and BP's North Sea operations. And the petrodollar recycling system opened up a vast pool of credit for the US government. But then again, all of these complex events could have been just a coincidence, and the Anglo-American power elite were just lucky.

    2. In a comment appended to Phil Giraldi's most recent essay, I intuited the same underlying motives behind America's present day so-called War On Terror for which Tim has provided the direct historical antecedent in his concise and factual response below. He provides persuasive evidence that America's mucking about in the Middle East has been in the recent past, and is today about the almighty U.S. dollar's status as the world's reserve currency.

      What Iraq, Libya, and Iran all have in common, besides squatting on our oil, is that each of them has threatened to go off the petrodollar reservation, whether it be to denominate petroleum sales in alternative fiat currencies, gold, or to open competing bourses. The dollar is the global unit of account for oil and international trade. As such, the worldwide demand for dollars in order to settle trade is immense. While at any given time dollar demand is dollar strength, sustained dollar strength, above and beyond that of competing debt instruments, has conferred upon the dollar its unique role as the world's reserve currency.

      The benefits of dollar primacy to the United States cannot be overstated. Universal demand for the dollar as a currency per se, that is as a medium of exchange, is only part of the narrative. In the past, dollar denominated debt has been universally recognized as an attractive investment, and even now, in these less sanguine times, it is viewed as a safe haven to those fleeing risk in other currencies and asset classes. So the world has gobbled up our dollar both as a solvent to trade and as a security, privileging America precisely how?

      The cost of borrowing for one. Because trade in oil and most other things is settled in dollars we don't have to pay a premium to purchase foreign currencies on the currency exchanges in order to conduct business internationally. More importantly, especially as the world's biggest borrower and debtor, through the Fed we can arbitrarily price the cost of (our own) borrowing as high or as low as we like. In theory, so long as the outside world and we ourselves take up new issues of, and roll over our existing debt, we can print money into perpetuity. In fact, demand for debt, from whatever sovereign, has always proven exhaustible. Once a sovereign's creditors perceive an inability to return value for value received, further demand for that sovereign's debt is greatly abated or extinguished.

      America has mortgaged the hopes and lives of its next three generations, and the world is chafing under the hostile suzerainty of the Dollar Imperium. This is why others are literally dying for, but nonetheless still seeking, alternatives to the petrodollar regime, and increasingly are concluding bi-lateral trade pacts in their own currencies. Dollar demand is in an abatement phase. If we don't rein in spending immediately, we shall soon see how infinitely elastic the full faith and credit of the United States truly is.

      War is the health of the State, yes, but the very survival of America depends upon the preeminence of the petrodollar and the near incalculable levels of debt financing it allows.

  2. Even a little bit of inflation, caused by a spike in oil (transport) costs would wreak havoc in America. That's the real risk.

  3. I'm sorry…. I'm a little "confused" at the moment… WTF??? Are the tough talk: "all options on the table" somehow now trumped by a potential spike in retail gasoline prices in the US? I believe the talking point is, and always has been, Iran obtaining nuclear weapons is tantamount to the "end of the world"–starting with Israel. Mr. Obama: are retail gasoline prices more important than even the alleged "extermination" of the Almighty 'Israel' to you? Let’s not forget about the lives and prosperity of those dirty Moooslims in Iran (many of whom have no real say in this and are already suffering much more than a $1 or $2 per gallon increase in gasoline prices)… So the end all and be all of Obama's concerns are retail gasoline prices? Fantastic…

  4. Sometimes government polities can leave us wondering — unless we understand what characteristics make up a psychopaths. This video "freedom from conscience – psychopaths" makes a pretty good case that our system makes it really quite cozy for psychopaths to take charge.

  5. The price of gasoline is up $.60 since Dec 22. I passed a gasoline station on Dec 22 on the way to the doctor. On my trip back it was up a dime. From that date the price has only spiraled up. This is real plan. Anyone who things that keeping the price of gasoline high is not the real goal off all our actions is just not understanding the trillions involved. We attacked and destroyed the oil of Iraq. We attacked Libya and destroy the oil of Libya. We are after Iran who has oil. We did not attack Egypt who is not an oil producer.
    It is all about keeping the money people rich. If they are successful in destroying Iran then Empire Israel is free to expand and possible eventually take on Turkey. What a sad world the USA has created because of the greedy oil people.

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