Expect Panic and Revenge from Iran over Oil Embargo
by RYAN MAURO
January 26, 2012
Oil tankers in the Strait of Hormuz.
It took far too long, but tough sanctions on Iran have finally arrived. On Monday, the European Union approved an oil embargo on Iran that will take full effect in July. Other countries are reducing oil imports from Iran. For a government that derives 85% of its revenue from oil exports and is already teetering on the edge, this is a reason for panic—and revenge.
The Iranian regime is already suffering from immense unpopularity, economic decline and a vicious internal power struggle. There is even dissent within the Revolutionary Guards. The impact of the last round of international sanctions was greatly underestimated. Israeli intelligence believes that the pressure forced Iran to cut its funding to Hezbollah by a whopping 40%. The oil embargo jabs the throat of the regime at a time when the regime needs every rial (the Iranian currency) it can get its hands on.
Iran exported 2.2 million barrels per day last year. It just lost 450,000 of that because of the European Union’s embargo. According to David Ignatius, Japan is talking about cutting back by 100,000 and South Korea by 40,000. Australia has followed suit and the South Africa’s Sasol Ltd. has begun moving away from oil business with Iran. Ignatius reports that, though China is publicly critical of the embargo, it has also cut its imports by half. In January 2011, China imported 550,000 barrels per day from Iran. In January 2012, it’s only 285,000.
Altogether, Iran could see its oil exports dropped by about 50% by July. Economist Trevor Houser says that the customers of Iranian oil will know they have leverage and “by the end of year, Iran’s remaining buyers will be looking for at least 10% to 15% price discount.” This loss of income is potentially lethal for a regime that depends on oil exports for up to 85% of its budget. It also makes it extremely difficult for Iran to fund its expensive nuclear program, sponsor terrorism, maintain the loyalty of its security forces and handle the growing frustrations of the population.
The Iranian people are smart enough to know that their personal hardships are a direct result of the government’s belligerence. With each day that goes by, the Iranian people will become angrier that the regime has chosen itself, its pride and its nuclear program over their well-being. For more and more Iranians, including many of those in the government and military, regime change will become a matter of survival. It also will affect the Syrian regime, which has been secretly shipping oil through Iran to earn revenue and is relying upon Iranian aid in fighting its own uprising.
The Iranian regime also has to cope with rising domestic consumption of its oil. John Hopkins University’s Roger Stern published a study that determined that Iran would consume all of its oil by 2015, leaving nothing to export. Dr. Woody Brock concluded the same thing in his own study. This means that the sanctions could conceivably be lifted and Iran would still be headed for an economic apocalypse. Now, with these sanctions, the regime could very well be forced to decide between its survival and its nuclear program, just as the U.S. intended. Unfortunately, as Bashar Assad can testify to, tyrannical leaders can stay in power for a long time if they don’t care about the level of bloodshed, especially if outside powers aren’t willing to step in.
How will Iran react to this embargo? Iran now has two primary objectives: Get the price of oil up as high as possible and make participants in the embargo second-guess their involvement. Progress in the former helps with the latter because rising gas prices will chip away at public support for the sanctions. That is why Iran is considering an immediate end of oil exports to Europe before the embargo goes into effect in July. The International Monetary Fund believes that oil prices could skyrocket by 30% if it does so.
Iran can also provoke a rise in the oil prices by causing an armed clash in the Strait of Hormuz and sponsoring acts of terrorism in the region. Iran is eager to punish Saudi Arabia for increasing its oil output in order to stabilize the markets. The Saudi Oil Minister even said his country could boost production by 2.7 million barrels per day, replacing Iran’s supply entirely.
Iran has explicitly threatened retaliation and it’s a safe bet that it will try. Remember, the Iranians hatched a plot to kill the Saudi ambassador to the U.S. by blowing up a restaurant in Washington D.C. after Wikileaks disclosed how he urged the U.S. to bomb Iran’s nuclear facilities. Killing the Iranian economy is a tad bit more of an offense. If Iran ever wants its threats to be taken seriously again, it will have to take action and in so doing, it’ll also accomplish its immediate need by making the price of oil go up.
We can celebrate that the oil embargo will inflict real pain on Iran but we must be prepared for the regime to do whatever it can to make you pay the price for it at the pump. And the best way to do that is with conflict, terrorism and aggression.
Ryan Mauro is Family Security Matters' national security analyst. He is a fellow with RadicalIslam.org, the founder of WorldThreats.com and a frequent national security analyst for Fox News Channel. He can be contacted at email@example.com.