Parsi: Without renewed diplomacy, war with Iran lies around the corner
Editor's Note: Trita Parsi is the author of the newly released book A Single Roll of the Dice – Obama’s Diplomacy with Iran (Yale University Press, 2012).
By Trita Parsi - Special to CNN
Iran’s warning that it will close the Straits of Hormuz if an oil embargo is imposed on it has sent oil prices soaring and raised fears that yet another war in the Middle East may be in the making. These fears are not unfounded, particularly if diplomacy continues to be treated as a slogan rather than as a serious policy option.
“Not even a drop of oil will flow through the Persian Gulf,” Iranian Vice President Mohammad Reza Rahimi warned, according to the state-controlled Islamic Republic News Agency (IRNA). Washington quickly dismissed the threat as mere bluster. But energy markets react not just to the credibility of threats and warnings, but on the general level of tensions.
While Iran is unlikely to act on its warning in the short term - closing the Straits would after all also choke of Iran’s own ability export oil and potentially pit it against Russia and China - these threatening statements do fill one important function: They cause oil prices to rise due to the increased risk premium. Higher oil prices are good for Iran but bad for the U.S. and the European Union. The euro is already risking collapse and the Obama administration cannot afford higher gas prices (and the negative impact that will have on job creation) in an election year.
It is likely to get worse. As the Obama administration - pushed by domestic political forces - continues to ratchet up pressure on Iran in the elusive hope that the government in Tehran will cry uncle and give up its nuclear program, the Iranians will respond to escalation with escalation.
(More here.)
By Trita Parsi - Special to CNN
Iran’s warning that it will close the Straits of Hormuz if an oil embargo is imposed on it has sent oil prices soaring and raised fears that yet another war in the Middle East may be in the making. These fears are not unfounded, particularly if diplomacy continues to be treated as a slogan rather than as a serious policy option.
“Not even a drop of oil will flow through the Persian Gulf,” Iranian Vice President Mohammad Reza Rahimi warned, according to the state-controlled Islamic Republic News Agency (IRNA). Washington quickly dismissed the threat as mere bluster. But energy markets react not just to the credibility of threats and warnings, but on the general level of tensions.
While Iran is unlikely to act on its warning in the short term - closing the Straits would after all also choke of Iran’s own ability export oil and potentially pit it against Russia and China - these threatening statements do fill one important function: They cause oil prices to rise due to the increased risk premium. Higher oil prices are good for Iran but bad for the U.S. and the European Union. The euro is already risking collapse and the Obama administration cannot afford higher gas prices (and the negative impact that will have on job creation) in an election year.
It is likely to get worse. As the Obama administration - pushed by domestic political forces - continues to ratchet up pressure on Iran in the elusive hope that the government in Tehran will cry uncle and give up its nuclear program, the Iranians will respond to escalation with escalation.
(More here.)
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1 Comments:
Good article.
I was listening to potential Commander-in-Chief Michele Bachmann interview with the Editorial Board of the Des Moines Register and she was asked how she would handle Iran … her response was not “forward” but “backwords” … she blamed Obama … the Board saw this as a non-response to the question … but the answer of blaming Obama ties into the author’s comment “Obama’s political maneuverability had become so limited” … the NEO-CONS had made it impossible for diplomacy to be pursued.
ICYMI … from The Air Force Times :
“It’s economic self-sabotage.”
Hormuz is in the territorial waters of Iran and Oman, but it is considered an international strait where free passage is guaranteed, meaning that under international law, closing it by any nation would be considered an act of war. Russia and China, Iran’s main allies that have protected it from stronger U.N. sanctions, would have little choice but to respond. Russia, which now has oil production contracts in Iraq, and China, which relies on the region for its supplies, also have no interest in seeing traffic stop, said Olivier Jakob of the Switzerland-based oil monitor Petromatrix.
Hormuz’s closure would also be a heavier blow to Iran than any sanctions hitting the approximately 2.5 billion barrels a day of oil it exports, which provide some 80 percent of its revenue. Not only do all of its oil exports go through the strait, but also most of its imports, including vital gasoline supplies.
Halting — or even denting — oil income would be devastating to an economy that is already struggling amid its international isolation. The value of Iran’s riyal is now 15,200 to the dollar, from 10,500 a year ago. Cash withdrawals from banks have been restricted.
Prices of food and grocery items like milk have increased up to 20 percent in recent months. In an attempt to cut its budget, the government recently ended subsidies on fuel and some foods, sending gas prices up sevenfold and quadrupling bread prices. In place of subsidies, the government gives direct payments of $40 a month to poor families to pay for necessities.
The threats also reflect a worry among Iran’s leaders that its oil can be replaced on the market by Arab producers, particularly Saudi Arabia, without too great an increase in world prices, said Mustafa Alani, a Geneva-based analyst with the Gulf Research Center. That makes a cutoff a viable option for the U.S., and if that happens “the economy will collapse.”
“All the noise about Hormuz is linked to the feeling that it is possible, and they say, ‘if we go down, we will take everyone with us.’ If Iranian oil stops, then all the oil stops,” he said.
But in the end, “I don’t think they are willing to do it because the consequences would cost them too much,” Alani said. “I don’t think they are so stupid.”
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