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| Syria-Lebanon-Iran |
| The World has Iran over a Barrel |
| 2006-06-02 |
| There's simply no getting around the fact that you can't eat petroleum. Iran's 132.5 trillion barrels in proved oil reserves--10.2% of the world total--are of little benefit unless they're earning money. A trade embargo would hit Iran especially hard, because its economy and government budget are inordinately dependent on petrodollars. Oil shipments account for about 25% of GDP, represent 90% of total export earnings and provide as much as 50% of fiscal receipts. Further, the country imports about one-third of its gasoline. Additional gasoline supplies and other oil products are refined in Tehran from 60,000 barrels a day (bbl/d) in imported crude that arrives via pipeline from the Caspian Sea in a swap arrangement. In Iran, gasoline, like foodstuffs, is heavily subsidized--to the tune of $3 billion this year--as part as the regime's strategy to buy off public opinion. With gasoline retailing at just 40 cents a gallon, consumption, not surprisingly, has been growing by 8% to 10% a year. In the six months ended March, Iranian production was down 1.3% from a year earlier versus a comparable gain of 1.5% for OPEC, excluding Iran and Iraq. Compared with the six months ended March 2002, Iran's output in the latest six-month period was up 13.4% against a 21.7% increase for the eight members of OPEC sans Iran and Iraq. What Tehran knows, and what the outside world has yet to grasp, is that an international trade embargo would hurt Iran infinitely more than it would hurt the U.S. For oil-importing countries, even though Iran exports roughly 2.7 million bbl/d in petroleum, a complete cutoff of these shipments could be offset in large measure by increased OPEC and non-OPEC output, greatly diminishing the dreaded prospect of $100-a-barrel oil. Saudi Arabia has the most untapped capacity, in the order of 1.3 million to 1.4 million bbl/d. Other OPEC members, according to the International Energy Agency, have spare capacity of 1.1 million bbl/d, not including Iraq's estimated 700,000 bbl/d. With a total of 2.4 million to 3.1 million bbl/d in idle capacity, OPEC alone could offset a loss of Iranian exports. Furthermore, global oil consumption is anticipated to grow in the range of 1.4 million to 1.6 million bbl/d this year, while new supply is expected to increase by 1.2 million to 1.3 million bbl/d. Much of the imbalance is expected to be covered by OPEC exports of LNG. Oil's fungibility notwithstanding, Asia in general and Japan in particular would be hardest hit by a cutoff of Iranian crude. (The U.S., Canada, Britain and Germany, among others, no longer import Iranian oil.) Besides, it's not like we haven't been through this before. Following the 1991 Gulf War, Iraqi oil exports fell by some 2.3 million bbl/d to a mere 61,750 bbl/d between 1991 and 1996. Even now, Iranian exports are way below their pre-revolution high of 5.5 million bbl/d, which was equal to 19.2% of OPEC's 1974 crude and products shipments. Thirty years later, Iran shipped three million bbl/d, or 11.7% of OPEC exports. To be sure, there are other risks to global oil supply--notably in Nigeria, Venezuela, Ecuador, Chad, Russia and Iraq. But should it be necessary, the U.S. could always play its trump card--namely, the Strategic Petroleum Reserve. Established after the 1973 OPEC oil embargo, the reserve has a current inventory of 688.6 million barrels of oil, sufficient to provide about two months of U.S. import protection. Were, say, 500,000 bbl/d to be siphoned off to partially offset a loss of Iranian crude, the stockpile would last more than three-and-a-half years. Iran doesn't have the world over a barrel. It's the other way around. The economic and fiscal squeeze of new trade sanctions could indeed become so painful as to prompt regime change. |
| Posted by:Nimble Spemble |
| #6 Then again, maybe the writer is English. |
| Posted by: 6 2006-06-02 14:48 |
| #5 132.5 trillion barrels Blows up the entire article. |
| Posted by: 6 2006-06-02 14:46 |
| #4 a pipeline ya say....Bugtis! |
| Posted by: Frank G 2006-06-02 13:04 |
| #3 Easiest thing would be a total blockade on Gasoline shipments into Iran. |
| Posted by: Bretta 2006-06-02 12:24 |
| #2 Oh right, we have them just where we want them. Only thing is, I don't think they know that. You cant reason with a lunatic. "Madness has no logic, but it may have a goal".-Spock |
| Posted by: bigjim-ky 2006-06-02 12:01 |
| #1 "The economic and fiscal squeeze of new trade sanctions could indeed become so painful as to prompt regime change." Regime change is not always as easy as it seems, just ask and Zimbob or Nork about the "economic and fiscal squeeze." |
| Posted by: Enriching B. Hard II 2006-06-02 11:48 |