Monday, February 20, 2012

Playing With Fire With Oil And Iran

Juan Cole is listing 10 reasons why the US sanctions against Iran making money from exporting oil are not working at . While indeed Iranian oil sales have fallen, the impact of this has been at least partly offset by the rising price of oil due to all the war talk associated with the sanctions, along with the failure of Saudi oil production to increase to fill the cutbacks, along with declines in oil production in Nigeria, Syria, and Sudan for various reasons, as well as the decisions by India, China, Japan, South Korea, and others to repudiate the US policy. All of this threatens Obama's reelection as gas prices are heading up and Republicans are claiming it is due to Obama blocking the Keystone pipeline project, even as they call for an even more hawkish policy against Iran (see Jim Hamilton for the latest analysis of the Keystone project at ).

I largely agree with Cole on most of his points, with some minor variations. He argues that it is the "Israeli lobby," particularly AIPAC, that is responsible for the sanctions policy, although I would think that the lobby is responding to the Israeli government rather than being an independent source for this policy push. Israeli political leaders are fearful of a possible Iranian nuclear bomb, and according to the NY Times today, are probably not able to actually bomb out fully the four sites involved in the Iranian nuclear program, which may be why they are pushing even harder on the US, despite Israeli military intel reportedly agreeing with US intel and DOD that Iran does not have an active nuclear weapons program.

The US and UK have reportedly urged Israel not to bomb Iran as this would be "destabilizing." They may not do so for the reason noted in the previous paragraph, but it strikes me that Netanyahu may not mind encouraging destabilization by engaging in war talk and pushing the sanctions that have Iran engaging in talk of blocking the Strait of Hormuz. Bibi does not like Obama and would be perfectly happy to see him lose an election due to a bad economy driven by high oil prices, and all that applause he got in the US Congress may make him think he can get away with this, and he probably can, although maybe the economic recovery is just too strong to be overcome by the negative effect of rising oil prices.

I note some caveats on Juan Cole's post. He says that "Iran is sitting pretty." Not so. While oil prices have indeed gone up with all the war talk, the Iranian rial has declined by something like 60% against the USD. This is not helping the standard of living in Iran for people used to relying on imports of many consumer goods.

OTOH, this decline in living standards, hoped by the US to put pressure on the Iranian regime, is backfiring, just as the economic embargo against Cuba has for a full half century now. Reportedly Iranian citizens are rallying to support the regime against the US actions against their economy.

This fits in with another delusion pandered about in Washington, that we could get Iran to "stop its nuclear weapons program" by more vigorously supporting the Green movement opposition. First of all, any action to openly support the opposition would simply discredit that movement. Second, the opposition has long made it clear that it supports the peaceful civilian nuclear program of Iran. Getting them into power might make Israel slightly less paranoid, but it will not alter the nuclear program itself one bit.

The key to the nuclear program remains as it has been for a long time, the position of Supreme Leader Ali Khamene'i, although an article yesterday in WaPo by Ray Takeh [sp?] argues that there is a new "war generation" led by Ahmadinejad that wants nuke weapons. It is true that these young guys will outlive him and could move the existing program into one that does lead to nuclear weapons, but he has repeatedly issued fatwas against nuclear weapons, and as Juan Cole has pointed out repeatedly, Iran has not attacked another nation since the 1700s. These minor facts, supported by official US intel reports, somehow get lost in all the hysteria and pushing of economically damaging sanctions programs. To the extent these sanctions programs are being put into place to keep the Israelis from bombing Iran, the report today in the NY Times may have removed even that half-baked rationale for this stupidity.


rjs said...

$5.00 gas this summer and the republicans have the issue they'll win with...

Myrtle Blackwood said...

Thankyou for this, Barkley.

I wonder whether Iranian nukes are the real issue, or is it just another front for some other perceived threat to the US?...Like (global) US dollar hegemony?

With the steadily falling US dollar Bush appeared to have difficulty (in 2008) convincing Middle Eastern nations to continue to peg their currencies to that of America.

And next month "the Iranian oil bourse will start trading oil in other currencies apart from the US dollar, heralding the arrival of a new oil market to be denominated in euro, yen, yuan, rupee or a basket of currencies."

The United States has amply demonstrated, for over 40 years now, that its elite will go to extraordinary lengths to maintain the reserve status of its currency.

Barkley Rosser said...


We have been through this before, but at this time I do not think that a falling dollar is something that has the Obamanians upset at all. QE2 was specifically designed to push the dollar down to encourage US exports and grow the US economy and employment, and it has worked. They are not bothered by that at all.

I do think that it may have to do with the economy, though, but indirectly through the Israeli connection. I know that US intel and DOD types do not think Iran has a nuclear weapons program. But the Israelis are threatening to attack Iran if the US does not squeeze them economically, and Obama figures an attack on Iran would lead to an even bigger spike in oil prices and a worsening of the US economy and his chances of reelection than the rise that is going on anyway.

As rjs, notes $5 per gallon for gasoline in the US will certainly help Obama's opponents, even if it does not necessarily guarantee his defeat. But $5 is better than $10, plus a war with Iran, which would not be at all popular in the US, where people are indeed pleased that we have finally gotten out of Iraq, more or less.

Myrtle Blackwood said...

It is the loss of global US dollar hegemony - rather than a falling value in the US dollar - that (I see) would likely upset 'Obamanians'.

The oil-exporting Middle Eastern nations were the ones upset about the slide in the value of the dollar, since their oil was traded in that currency. Iran is a major oil exporter, so it isn't surprising that this country would like to experiment with a basket of currencies and avoid the dollar as much as possible in this time when the 'Obamanian' printing presses are on bigtime. Sure, the price of oil could be increased to make up for the loss of value from a debauched trading currency. That action, however, passes on inflation to the rest of the world.

The major issues I perceive between the US and Iran are:

(i) the lack of a stable value in global trading currency;

(ii) the well-established history of the US exporting inflation around the world;

(iii) mistrust between the US and Iran also due to the US' history of exploitation in that nation. Other US misadventures would accentuate this problem such as *the widespread use of depleted uranium and (general) US history of nuclear abuse, *invasions in the Middle East, *failure of the US to take responsibility in global financial markets...etc.

Myrtle Blackwood said...

just saw Condoleesa Rice beating up a war against Iran. This is a re-run of the war against Iraq.

First (i) identify a major world oil producer then (ii) say that the nation is hiding weapons of mass destruction. (iii) the targetted nation is forced to accept 'inspectors'.....and so on...

rjs said...

there have been attempts to connect iran to 9/11 as well...patently absurd, as the hijackers were saudi sunni arabs & iran is shiite persians, & they have historically been bitter enemies...

Barkley Rosser said...

And Iran actually supported the US invasion of Afghanistan to overthrow the Taliban government, for which they were rewarded by George W. Bush lumping them in with Iraq and North Korea as part of a an "Axis of Evil," (W. trying to play junior Ronald Reagan in contrast with his wimpy dad), and also turning down a reported offer to make some sort of deal regarding the whole nuclear issue.