Dire straits

Iran is threatening to cut oil supplies from the Gulf, but who would be hurt most by such a move remains open to speculation, writes Ibrahim Nafie

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The US-Iranian crisis took a sharp turn when Ayatollah Ali Khamenei, supreme guide of the Islamic Republic, threatened to cut off oil supplies from the Gulf in response to any "wrong move" by Washington. "Any wrong move on your part towards Iran," Khamenei told the Americans, "would expose oil supplies coming from the Gulf to real dangers." The Iranian leader was not just threatening to discontinue Iranian oil exports. Apparently, he was threatening to cut off all oil supplies going through the Strait of Hormuz -- approximately 16 million barrels a day. The consequences of such action would be immense.

During the OPEC meetings in Venezuela, Iran was careful not to rock the boat. It even voted for keeping oil production high in order to prevent prices climbing higher. And President Ahmadinejad sounded reassuring when he said that his country would examine the proposals made by major countries for ending the crisis over Iran's nuclear programme.

The US continues to use a mixture of harsh and soft words in its long-running duel with Iran. Washington said it would be willing to hold face-to-face talks with Tehran once the latter stops the enrichment of uranium. Washington also approved of the incentives package prepared by the EU. And yet President Bush has warned that unless Iran accepts the European initiative, it would face economic sanctions. The US president disclosed that both Russia and China had told him they would support sanctions should current negotiations fail.

Condoleezza Rice dismissed Khamenei's threats. Iran, the US secretary of state pointed out, relies on oil to finance up to 80 per cent of its national budget, which places it in a vulnerable situation. Rice has a point. But there are other aspects of the issue that one has to consider. It's not difficult for Iran to cut off oil supplies through the Gulf. Should it do so, the impact on Asian and Western economies would be great and time would be at a premium. The US and Europe have enough oil reserves to assuage fears. Recently, the Saudi oil minister admitted that his country had to cut back its oil production for lack of buyers. Other Gulf countries have done the same.

But China hasn't been building up its reserves with the same degree of vigour seen in the US and Europe. This would make an interruption in oil supplies a gamble on more than one level. Should supplies drop, the price of oil may shoot to anything between $100 and $120 a barrel. Panic would hit the markets and consumers may end up pressuring their governments to offer concessions to Iran. As for Tehran, one would imagine that it has taken measures to offset the loss in oil revenues.

Secretary Rice is telling us that Iran would suffer more than the West from a halt in oil supplies. If that is true, I wonder why Western nations have refrained from including Iranian oil in talk of punitive measures against Iran. Is it because they are worried about the welfare of Iranians?