October 24, 2012
Sanctions Take Toll on Iran’s Influence in the Global Oil Market
Yesterday, Iran’s Oil Minister Rostam Qasemi told an audience at the World Energy Forum in Dubai that the Iranian government would halt all of its oil exports if the United States and other western powers strengthened their antinuclear sanctions against Tehran. “If you continue to add to the sanctions, we will stop our oil exports to the world,” Qasemi told a news conference, according to Bloomberg News, adding, “The lack of Iranian oil in the market would drastically add to the price.”
In the past, that kind of announcement might have made oil traders nervous, raising global prices. But since the international sanctions have been in place, Iranian oil exports have shrunk considerably, from 2.2 million barrels a day in 2011 to 860,000 barrels a day in September 2012. Iran’s shrinking share of the global oil market – and rising production in places like Saudi Arabia, Iraq and the United States that is offsetting supply shortages – has weakened Tehran’s ability to wreak havoc in the global oil market. That’s why oil prices fell to a three-month low, according to The New York Times: “On the New York Mercantile Exchange, the price of the benchmark grade fell $1.98 a barrel or 2.3 percent to $86.67, the lowest closing price since July 12.”
Most experts agree that Iran is unlikely to halt its oil shipments to those countries that currently have exemptions to the oil embargo, like India. The sanctions have already taken a toll on the economy. Iran’s currency has lost 40 percent of its value and sanctions against the country’s central bank prevent it from shoring up its currency with foreign reserves. Iran cannot afford to stop exporting its oil without further weakening its economy.
But even while Iran may not have as much direct influence in the global oil market, there is always the possibility that Tehran will try to indirectly raise global oil prices through more brazen efforts, like threatening or actually attempting to close the Strait of Hormuz through which 20 percent of the world's oil is shipped, which would raise global oil prices by as much as 50 percent in a few days. In that sense, Iran can still wreak havoc in the global oil market and onlookers should keep a watchful eye towards Tehran’s behavior.