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Possible Showdown With Iran Sends Oil Prices Soaring

Wednesday, 04 January 2012 03:10 By Kevin G Hall and Jonathan S Landay, McClatchy Newspapers | Report

Washington - The possibility of a confrontation between the United States and Iran appeared to grow Tuesday after the Obama administration dismissed an Iranian warning against moving a U.S. aircraft carrier into the Persian Gulf, saying the deployment was crucial to "the security and stability of the region." Fears that a crisis could disrupt Gulf tanker traffic carrying some 40 percent of the world's sea-borne oil drove international petroleum prices up by more than $4 a barrel, a potential threat to U.S. and global economies struggling to emerge from recession.

The rising tensions come as the U.S. and Europe target Iran's crucial oil revenues for the first time in an intensification of sanctions against Tehran for rejecting repeated U.N. demands to halt its nuclear program. The program is widely thought to be secretly developing nuclear arms, which Iran denies.

The Iranian currency, the rial, plunged to a record low against the U.S. dollar, reportedly triggering a run on banks by Iranians anxious to convert their savings into the American currency before the exchange rate worsens. Gen. Ataollah Salehi, the Iranian army chief, warned that Iran would take unspecified action if a nuclear-powered aircraft carrier, the USS Stennis — which leads a strike group of five warships — re-enters the Gulf. The carrier departed the waterway last week as Iran conducted naval exercises. "We recommend and warn the aircraft carrier not to return to its previous position in the Persian Gulf," Press TV, a state-run English-language satellite news channel, quoted Salehi as saying. "We are not in the habit of repeating a warning and we warn only once."

The United States rejected the warning, declaring that "the deployment of U.S. military assets in the Persian Gulf will continue as it has for decades."

"These are regularly scheduled movements in accordance with our long-standing commitments to the security and stability of the region and in supporting ongoing operations," Pentagon spokesman George Little said in a statement. White House spokesman Jay Carney sought to minimize the threat, portraying it as a bid by Tehran to divert its people's attention from their worsening economic plight and growing international isolation. Salehi's comments are "confirmation that Tehran is under increasing pressure," Carney said.

Ian Bremmer, the president of the Eurasia Group, which advises corporations on foreign policy risks, said he thought the Iranian threat amounted to bluster because of the harm that a confrontation with the United States would do to Iran's struggling economy. "It would be economic suicide for them, but they are absolutely willing to push the needle here because the stakes are high and they are being squeezed," he said.

But Vali Nasr, a former State Department adviser who's with Tufts University's Fletcher School for international affairs, said Salehi's comment appeared to push tensions to a new level. "You now have a situation where you could have a cycle of events that could basically escalate into a conflict that neither side may necessarily be planning for," Nasr said.

Salehi's threat is the most aggressive of a series of saber-rattling statements that Iran has issued since November, when the U.N. International Atomic Energy Agency reported that Tehran could be working secretly on a nuclear warhead for a ballistic missile. Moreover, by saying that Iran wouldn't issue the United States another warning, Salehi's statement appeared to box in Tehran, limiting its diplomatic options and opening the regime to ridicule at home if it fails to make good on its pledge to act if the Stennis returns.

The latest frictions follow threats by Tehran to blockade the Strait of Hormuz, the narrow passageway at the Gulf's southern end, if the West imposes an oil embargo on Iran, a move that the European Union is expected to take later this month. But French Foreign Minister Alain Juppe, speaking Tuesday in a television interview, said the 27-nation EU should impose even harsher sanctions.

An EU diplomat, who spoke only on the condition of anonymity because of the sensitivity of the issue, said Juppe wanted the bloc to follow the lead of the United States, which imposed new sanctions last week that deny access to the U.S. financial system to foreign entities that do business with Iran's central bank, which handles most payments for Iranian oil and gas exports. The exports account for some 60 percent of Iran's economy. The legislation represented a major expansion of unilateral U.S. sanctions against Tehran, which also is under EU measures and four rounds of U.N. sanctions.

However, the EU, which imports roughly one-quarter of its oil from Iran but has been shifting to other suppliers, is split over targeting the Iranian central bank, the diplomat said. Nasr said that targeting Iran's main source of revenue was pushing "the stakes higher than they've ever been. Never before have they actually been cut out of the oil market."

"Things have changed," Bremmer said. "The countries that actually get oil from Iran in Europe have new governments that are prepared to take a harder line." Even China, which has been one of Iran's few major defenders by pushing for watered-down U.N. sanctions, has reduced its purchases of Iranian oil and is relying on Saudi Arabia to make up the difference.

Saudi Arabia, no friend of Iran, is producing 9.5 million to 10 million barrels per day of oil, according to Saudi and OPEC data. The kingdom has production capacity in the range of 11.5 million to 12 million barrels per day, and it's widely considered the oil producer of last resort. "The Saudis should be able to just about make it up," said John Kilduff, a veteran oil analyst for Again Capital in New York. "The good news is that the Iranian oil and Saudi oil are pretty much the same composition."

U.S. military officials expressed little worry that Iran could close the Strait of Hormuz for long given the American naval presence in the region and the economic costs to Iran. However, Iran could disrupt shipping traffic — and keep global oil prices high — by releasing mines into the strait or simply announcing that it had done so.

Either act could compel the United States to deploy a task force of minesweeping helicopters and ships now stationed in Manama, Bahrain. Those vessels and aircraft could be vulnerable to Iranian attacks, however, forcing the deployment of a protective screen of additional American ships. Such a step would cost the U.S. military much more than the cost to Iran of dispensing mines. The Stennis strike group steamed out of the Gulf on Dec. 27 into the Arabian Sea, where its aircraft have been supporting U.S.-led operations in Afghanistan.

It departed as Iran conducted a 10-day naval exercise in the southern portion of the waterway during which it test-fired missiles. Little, the Pentagon spokesman, made it clear that the flotilla wouldn't be deterred from returning, saying that U.S. Navy vessels would be operating "under international maritime conventions . . . to ensure the continued, safe flow of maritime traffic in waterways critical to global commerce."

(Nancy A. Youssef contributed to this article.)

© 2011 McClatchy-Tribune Information Services
Truthout has licensed this content. It may not be reproduced by any other source and is not covered by our Creative Commons license.

Jonathan S Landay

Jonathan S. Landay, national security and intelligence correspondent, has written about foreign affairs and US defense, intelligence and foreign policies for 15 years. From 1985-94, he covered South Asia and the Balkans for United Press International and then the Christian Science Monitor. He moved to Washington in December 1994 to cover defense and foreign affairs for the Christian Science Monitor and joined Knight Ridder in October 1999. He speaks frequently on national security matters, particularly the Balkans. In 2005, he was part of a team that won a National Headliners Award for "How the Bush Administration Went to War in Iraq.'' He also won a 2005 Award of Distinction from the Medill School of Journalism for "Iraqi exiles fed exaggerated tips to news media."


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Possible Showdown With Iran Sends Oil Prices Soaring

Wednesday, 04 January 2012 03:10 By Kevin G Hall and Jonathan S Landay, McClatchy Newspapers | Report

Washington - The possibility of a confrontation between the United States and Iran appeared to grow Tuesday after the Obama administration dismissed an Iranian warning against moving a U.S. aircraft carrier into the Persian Gulf, saying the deployment was crucial to "the security and stability of the region." Fears that a crisis could disrupt Gulf tanker traffic carrying some 40 percent of the world's sea-borne oil drove international petroleum prices up by more than $4 a barrel, a potential threat to U.S. and global economies struggling to emerge from recession.

The rising tensions come as the U.S. and Europe target Iran's crucial oil revenues for the first time in an intensification of sanctions against Tehran for rejecting repeated U.N. demands to halt its nuclear program. The program is widely thought to be secretly developing nuclear arms, which Iran denies.

The Iranian currency, the rial, plunged to a record low against the U.S. dollar, reportedly triggering a run on banks by Iranians anxious to convert their savings into the American currency before the exchange rate worsens. Gen. Ataollah Salehi, the Iranian army chief, warned that Iran would take unspecified action if a nuclear-powered aircraft carrier, the USS Stennis — which leads a strike group of five warships — re-enters the Gulf. The carrier departed the waterway last week as Iran conducted naval exercises. "We recommend and warn the aircraft carrier not to return to its previous position in the Persian Gulf," Press TV, a state-run English-language satellite news channel, quoted Salehi as saying. "We are not in the habit of repeating a warning and we warn only once."

The United States rejected the warning, declaring that "the deployment of U.S. military assets in the Persian Gulf will continue as it has for decades."

"These are regularly scheduled movements in accordance with our long-standing commitments to the security and stability of the region and in supporting ongoing operations," Pentagon spokesman George Little said in a statement. White House spokesman Jay Carney sought to minimize the threat, portraying it as a bid by Tehran to divert its people's attention from their worsening economic plight and growing international isolation. Salehi's comments are "confirmation that Tehran is under increasing pressure," Carney said.

Ian Bremmer, the president of the Eurasia Group, which advises corporations on foreign policy risks, said he thought the Iranian threat amounted to bluster because of the harm that a confrontation with the United States would do to Iran's struggling economy. "It would be economic suicide for them, but they are absolutely willing to push the needle here because the stakes are high and they are being squeezed," he said.

But Vali Nasr, a former State Department adviser who's with Tufts University's Fletcher School for international affairs, said Salehi's comment appeared to push tensions to a new level. "You now have a situation where you could have a cycle of events that could basically escalate into a conflict that neither side may necessarily be planning for," Nasr said.

Salehi's threat is the most aggressive of a series of saber-rattling statements that Iran has issued since November, when the U.N. International Atomic Energy Agency reported that Tehran could be working secretly on a nuclear warhead for a ballistic missile. Moreover, by saying that Iran wouldn't issue the United States another warning, Salehi's statement appeared to box in Tehran, limiting its diplomatic options and opening the regime to ridicule at home if it fails to make good on its pledge to act if the Stennis returns.

The latest frictions follow threats by Tehran to blockade the Strait of Hormuz, the narrow passageway at the Gulf's southern end, if the West imposes an oil embargo on Iran, a move that the European Union is expected to take later this month. But French Foreign Minister Alain Juppe, speaking Tuesday in a television interview, said the 27-nation EU should impose even harsher sanctions.

An EU diplomat, who spoke only on the condition of anonymity because of the sensitivity of the issue, said Juppe wanted the bloc to follow the lead of the United States, which imposed new sanctions last week that deny access to the U.S. financial system to foreign entities that do business with Iran's central bank, which handles most payments for Iranian oil and gas exports. The exports account for some 60 percent of Iran's economy. The legislation represented a major expansion of unilateral U.S. sanctions against Tehran, which also is under EU measures and four rounds of U.N. sanctions.

However, the EU, which imports roughly one-quarter of its oil from Iran but has been shifting to other suppliers, is split over targeting the Iranian central bank, the diplomat said. Nasr said that targeting Iran's main source of revenue was pushing "the stakes higher than they've ever been. Never before have they actually been cut out of the oil market."

"Things have changed," Bremmer said. "The countries that actually get oil from Iran in Europe have new governments that are prepared to take a harder line." Even China, which has been one of Iran's few major defenders by pushing for watered-down U.N. sanctions, has reduced its purchases of Iranian oil and is relying on Saudi Arabia to make up the difference.

Saudi Arabia, no friend of Iran, is producing 9.5 million to 10 million barrels per day of oil, according to Saudi and OPEC data. The kingdom has production capacity in the range of 11.5 million to 12 million barrels per day, and it's widely considered the oil producer of last resort. "The Saudis should be able to just about make it up," said John Kilduff, a veteran oil analyst for Again Capital in New York. "The good news is that the Iranian oil and Saudi oil are pretty much the same composition."

U.S. military officials expressed little worry that Iran could close the Strait of Hormuz for long given the American naval presence in the region and the economic costs to Iran. However, Iran could disrupt shipping traffic — and keep global oil prices high — by releasing mines into the strait or simply announcing that it had done so.

Either act could compel the United States to deploy a task force of minesweeping helicopters and ships now stationed in Manama, Bahrain. Those vessels and aircraft could be vulnerable to Iranian attacks, however, forcing the deployment of a protective screen of additional American ships. Such a step would cost the U.S. military much more than the cost to Iran of dispensing mines. The Stennis strike group steamed out of the Gulf on Dec. 27 into the Arabian Sea, where its aircraft have been supporting U.S.-led operations in Afghanistan.

It departed as Iran conducted a 10-day naval exercise in the southern portion of the waterway during which it test-fired missiles. Little, the Pentagon spokesman, made it clear that the flotilla wouldn't be deterred from returning, saying that U.S. Navy vessels would be operating "under international maritime conventions . . . to ensure the continued, safe flow of maritime traffic in waterways critical to global commerce."

(Nancy A. Youssef contributed to this article.)

© 2011 McClatchy-Tribune Information Services
Truthout has licensed this content. It may not be reproduced by any other source and is not covered by our Creative Commons license.

Jonathan S Landay

Jonathan S. Landay, national security and intelligence correspondent, has written about foreign affairs and US defense, intelligence and foreign policies for 15 years. From 1985-94, he covered South Asia and the Balkans for United Press International and then the Christian Science Monitor. He moved to Washington in December 1994 to cover defense and foreign affairs for the Christian Science Monitor and joined Knight Ridder in October 1999. He speaks frequently on national security matters, particularly the Balkans. In 2005, he was part of a team that won a National Headliners Award for "How the Bush Administration Went to War in Iraq.'' He also won a 2005 Award of Distinction from the Medill School of Journalism for "Iraqi exiles fed exaggerated tips to news media."


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