The War Premium On Oil

Speculators may be assuming that Israel and the United States will ‘take out’ Iranian nuclear facilities.

Jorge Castañeda
Updated: 12:45 PM ET Jun 28, 2008

There are two questions being asked around the global water cooler these days, and no one seems to have a very good answer for them. First, why does the price of oil keep rising, even if the world economy is slowing down and the Saudis appear to be willing to raise production? Second, why do so many analysts and governments think that the United States or Israel, or both, will attempt to destroy or set back the Iranian nuclear program sometime before George W. Bush’s departure from the White House early next year? While there is a early infinite number of answers available to both of these questions, this writer likes one: it lies in the link between the two questions.

Obviously there is no single explanation for the astonishing and persistent rise in oil prices, recently hitting more than $140 per barrel. But one explanation may well be that energy traders and even real consumers, including refiners, companies and governments, are betting on an American-Israeli intervention against Iran in the near future, and logically believing that such an act would drive oil prices sky-high. While the American, Israeli and increasingly European attitude of turning up pressure, sanctions and threats against Tehran may well be the best way to both avoid military action and ensure that Iran does not acquire nuclear weapons, it has the unintended consequence that some people may actually believe it. Speculators and others may be acting on the assumption that Washington and its Israeli ally will proceed to “take out” Iranian nuclear facilities, because that is exactly what Bush and his allies are implying will happen if the Ahmadinejad regime does not comply with U.N. resolutions.

What would happen if such an intervention were to occur? To begin with, Iran would almost certainly suspend most or all of its oil sales abroad in retaliation; that would remove a couple of million barrels from the current worldwide supply of roughly 85 million barrels per day. Then—and this is crucial—Tehran’s increasingly close ally, Hugo Chávez in Caracas, would in all likelihood at least stop sales to the United States and possibly declare a general suspension of sales. There go another 1.5 million barrels per day, though PDVSA, the Venezuelan state oil company, claims it is exporting substantially more today (showing, by the way, that in today’s global economy, it is not that easy to know exactly how much each producer is placing on the world market). Finally, it would not be impossible for other exporters, out of tongue-in-cheek solidarity with Iran (applauding the American-Israeli move in private while giving lip service to international law in public), to remove an additional million or so barrels per day from the global market. Prices would in all likelihood break through the $200 ceiling, and maybe go much higher.

Would this be cutting off the noses of Iran and Venezuela to spite their faces? In part, of course, but it would not be very different from the 1973 Arab exporters’ boycott of oil sales to industrialized countries in the wake of the Yom Kippur war in the Middle East, which multiplied prices by four. Both Tehran and Caracas, at least, have monetary reserves to sustain a boycott for a while, especially if they cheat and make spot sales at inflated prices. True, they could not maintain this stance indefinitely, but do the Republicans really want to begin the autumn election campaign with gas at $6 per gallon—a 50 percent increase from today’s already high prices—and a crisis on their hands in the Persian Gulf and Latin America?

On the other hand, the window for doing something about Iran will not remain open forever. The more time that goes by, the closer Tehran will be to both producing a nuclear device and having the capability of delivering it in the neighborhood. It seems highly improbable that an Obama administration would like to kick off its first term with a surgical strike against Iran; nor does it seem plausible that Israel would move on its own without U.S. acquiescence. Those who fear a nuclear-armed Iran (French President Nicolas Sarkozy said in June in Jerusalem that such a notion was unacceptable) have rapidly diminishing room to maneuver.

This certainly explains the disinformation, feints and bluffs the world is witnessing on oil markets, in Mediterranean airspace (where Israel “secretly” carried out a “dry run” attack on Iran in June) and in technological, financial and commercial exchanges between Iran and the rest of the world.

There is a theory that the Iranian nuclear program is in fact much less advanced than many believe, mainly as a result of constant sabotage and assassinations, as well as disruptions of deliveries and purchases, all carried out by Western intelligence services. This views holds that financial sanctions, undercover operations and the Israeli efforts to drive a wedge between Iran and its allies in the region, particularly Syria, may suffice to restrain Iran from gaining nuclear weapons, for now. On one condition: that Iran and others believe that the military option remains on the table. But if they believe it, energy traders will, too, and oil prices will react accordingly.


28 June 2008


TEHRAN (FNA)- The past week’s spate of signals that Israel might be
preparing a strike against Iranian nuclear targets amounts to nothing more
than posturing to prod the West in negotiations with the Islamic Republic,
analysts say.

The New York Times reported on June 20 that Israel had carried out military
maneuvers simulating a long-range bombing run and attendant rescue
operations, but internal political considerations in Israel, the US and
Iran’s Arab neighbors augur against such a strike, with the show of force
designed instead to push the US and Europeans to move more forcefully
against Iran’s nuclear program, a number of analysts told the Daily Star.

“This is part of Israeli pressure on the US and the world community,” said
Paul Salem, director of the Carnegie Middle East Center. “This is part of an
ongoing, clear and fairly predictable campaign of saber-rattling to put
pressure on Europe and the US. This serves to remind Iran that the military
option is still on the table.

“I don’t think [an attack] is going to happen. I don’t think there’s a sense
that military action can be or will be taken now.”

Israel would not be able to hit Iran without the consent and assistance of
the US, because Iran’s response would be sure to include US targets, Salem

Mohammad ElBaradei, head of the UN’s International Atomic Energy Agency,
said on June 21 that a strike on Iran would “transform the Middle East
region into a ball of fire.”

“The US would have to give a red or green light,” he said. “It cannot be a
decision made solely by Israel. It would be interpreted as a US decision,
and the repercussions will be as such.”

“This is not Osirak in 1981,” Salem said, referring to the unilateral
Israeli air raid in June 1981 against the Iraqi nuclear reactor in Osirak
that Israel feared was part of a drive for nuclear weapons.

The US would not likely assent to an Israeli strike on Iran, as long as some
150,000 US troops are stationed in neighboring Iraq, said Amal
Saad-Ghorayeb, who is working on a book about Iran’s role heading regional
opposition to the US and Israel.

“There could be no such thing as an isolated Israeli attack on Iran,” she
said. “It would have dire consequences for the US in Iraq. Because the US
has so much at stake (in Iraq), there’s no way they would give the Israelis
carte blanche. If the US is not ready to provide that sort of cover for a
regional war, then Israel is not willing to go for it alone.”

“Israel and the US are not seen in isolation from one another. An attack on
one necessarily means an attack on the other,” Saad-Ghorayeb added.

Saad-Ghorayeb, who wrote the 2002 book “Hezbollah: Politics and Religion”,
also reiterated that Israel knows fully well that any such attack would
necessarily entail a regional war.

“It would be a strategic blunder at this point for Israel. ”

At this point, however, Israel and the US are simply not readying the
military assets and logistics structure needed in the Persian Gulf to back
an attack, said retired General Elias Hanna, who teaches political science
at Notre Dame University. The US Navy says it has one aircraft carrier
group, led by the USS Truman, and the Marines have one combat group in
place – nowhere near the hardware necessary to fight against Iranian air
defenses, mount recovery operations or assess damage after any strike, he

“You have no signals, no indications” of preparation, he said. “The whole
system is not working” toward an attack, he added. “The Israelis are sending
messages to the Europeans, as well as the US, that our patience is over.”

Attacking nuclear sites in Iran represents a far more complicated operation
than the 1981 Osirak raid, Hanna said. Iran has used the “redundancy
approach,” locating its nuclear facilities widely throughout the country – a
uranium enrichment facility in Natanz, a plant which could produce plutonium
in Arak and a uranium-conversion center in Isfahan – to force any would-be
attacker to fly numerous sorties in different regions, Hanna added.

In addition to the military obstacles facing Israel, politically crippled
Prime Minister Ehud Olmert has little chance of cobbling together support
for an attack, Saad-Ghorayeb said.

After US businessman Morris Talansky testified last month that he had years
ago given Olmert about $150,000 in unreported slush funds, Olmert staved off
the threat of early elections by agreeing on Wednesday to put his post as
head of the Kadima party to a vote before October. Even if Olmert wanted to
distract the Israeli public by waging war, his Cabinet partners in the Labor
party would not allow it, Saad-Ghorayeb added.

“Who said Labor wants to bolster the Kadima party by supporting a war
against Iran?” she asked.

Moreover, the imminent prisoner swap between Israel and Hezbollah involving
Samir Kontar reveals an Israel breaking long-held traditions against
releasing prisoners who have killed Israelis, Saad-Ghorayeb said.

“I don’t think this is the sign of a country that is going to launch an
attack on the greatest power in the region,” she added. “I don’t think it’s
very likely that Israel will attack Iran.”

In the US, theories continue to circulate about a US strike against Iran,
but President George W. Bush appears to be pursuing a multilateral,
consensus approach on Iran, and the US electorate would likely punish his
Republican party severely in November’s elections for another attack in the
Middle East, the analysts said.

“I don’t think the American public is going to support another war in the
region,” Saad-Ghorayeb said. “I don’t think the US or Israel, or any of
their allies in the region, can handle another regional war.”

US allies in the Persian Gulf, for their part, are reaping the benefits of
record oil prices, but they would be loathe to see oil prices soar higher if
it meant the regional conflagration certain to ensnare them in the aftermath
of an attack on Iran, the analysts said.

Iran’s Arab neighbors do not want any war with Iran, Salem said.

Bombing Iran would also undo any progress the West has made in its
negotiations over Iran’s nuclear program – and will make Iran consider rapid
development of nuclear arsenals, while the Islamic Republic would gain a
measure of sympathy from across the Middle East, Saad-Ghorayeb said.

However, just as Israel’s recent maneuvers endeavor more to push the
negotiating track along, Iran’s drive for nuclear technology is in the end
more about geopolitical power than a military plan, said Saad-Ghorayeb.

“It has more to do with strategic interests” in the region, she said.
“Wiping out Israel with a nuclear bomb is much less likely on a practical

Obscured by all the ado over possible attacks is an underlying false premise
that Iran would actually use a bomb, if the West does not intervene
militarily to prevent Iran from developing nuclear technology, said Hanna.
Iran knows about Israel’s nuclear arsenal and will not opt for nuclear
weapons, he added.

“Israel has second- and third-strike capability,” Hanna said. “Iran is a
rational player – they will not do it.”

Israel and its close ally the United States accuse Iran of seeking a nuclear
weapon, while they have never presented any corroborative document to
substantiate their allegations. Iran vehemently denies the charges,
insisting that its nuclear program is for peaceful purposes only.

Tehran stresses that the country has always pursued a civilian path to
provide power to the growing number of Iranian population, whose fossil fuel
would eventually run dry.

Iran has also insisted that it would continue enriching uranium because it
needs to provide fuel to a 300-megawatt light-water reactor it is building
in the southwestern town of Darkhoveyn as well as its first nuclear power
plant in the southern port city of Bushehr.

Tel Aviv and Washington have recently intensified their threats to launch
military action against Iran to make Tehran drop what they allege to be a
non-peaceful nuclear program, while a recent report by 16 US intelligence
bodies endorsed the civilian nature of Iran’s programs.

Following the US National Intelligence Estimate (NIE) and similar reports by
the IAEA head – one in November and the other one in February – which
praised Iran’s truthfulness about key aspects of its past nuclear activities
and announced settlement of outstanding issues with Tehran, any effort to
impose further sanctions or launch military attack on Iran seems to be
completely irrational.

The February report by the UN nuclear watchdog, the International Atomic
Energy Agency, praised Iran’s cooperation in clearing up all of the past
questions over its nuclear program, vindicating Iran’s nuclear program and
leaving no justification for any new UN sanctions.

Following the said reports by US and international bodies, many world states
have called the UN Security Council pressure against Tehran unjustified,
demanding that Iran’s case must be normalized and returned from the UNSC to
the IAEA.

US President George W. Bush finished a tour of the Middle East in winter to
gain the consensus of his Arab allies to unite against Iran.

But hosting officials of the regional nations dismissed Bush’s allegations,
describing Tehran as a good friend of their countries.

Bush’s attempt to rally international pressure against Iran has lost steam
due to the growing international vigilance, specially following the latest
IAEA and US intelligence reports.



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