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- Dubai 05:28 06:47 12:13 15:10 17:33 18:51
A decision by the United States and its Western allies to intensify sanctions against Iran over its nuclear programme could only increase oil market speculation but would unlikely lead to a total disruption in Tehran’s crude exports, according to a prominent Arab energy analyst.
Walid Khaddouri, a former information director at the Organization of Arab Petroleum Exporting Countries, warned that Iran could destabilize the global economy if it carries out its threat and shuts the strategic Hormuz Strait, the Gulf’s only gateway through which over a fifth of the world’s oil exports pass.
“As is widely known, previous sanctions could not help prevent or even significantly reduce Iran’s oil exports and it is unlikely that new sanctions would achieve these goals,” Khadduri said in an article published by the Abu Dhabi-based Emirates Centre for Strategic Studies and Research.
“However, it is likely that these sanctions, as has been the case in the past, will increase speculation in oil markets particularly as a result of Iran’s repeated threat to close the Strait of Hormuz if sanctions interrupt its own exports. Such threats raise fears in global markets and increases oil prices.”
He said the sanctions can also reduce Iran’s oil output capacity in the foreseeable future given the ban on export of crude production tools and equipment from European countries.
“In a nutshell it can be said that even a comprehensive and urgent blockade on Iranian oil exports will not halt or even delay its nuclear programme.
The only time it stopped was during the US invasion of Iraq in 2003,” said Khadduri, who had headed the Nicosia-based MEES oil bulletin.
“This means that in the absence of any military threat, Tehran will continue to go down that path. Moreover, a comprehensive ban on Iranian oil is unlikely before the restoration of Libya’s oil exports to the pre-revolution levels.”
Khadduri noted that Libyan crude oil production currently stands at around one million bpd compared to 1.6 million bpd before the revolution.
The country is expected to return to its pre-revolution level of production in June next year and any move before that will only increase the supply shortage and create confusion in the markets besides increasing speculation and eventually raising prices, he said.
“It is hence unlikely that Western countries, which are suffering from one of their most severe economic crises, will implement a total ban on Iran’s oil. They will instead tend to impose partial sanctions which wouldn’t affect this vital sector of Iranian economy to a large extent,” Khadduri said.
“The prevalent belief in Western circles, especially at the International Energy Agency (IEA), is to stop the export of equipment and technical tools to Iran that are necessary for oil exploration and production. They believe this will reduce Iran’s production capacity from about 3.5 million bpd to less than three million bpd by mid-decade.”
Khadduri, author of several energy books, said it is not known how Iran would respond to tougher Western sanctions and blockade.
“Would it stop at a few hostile statements against the parties concerned, as has previously been the case, or retaliate by taking steps such as trying to close the Strait of Hormuz and cutting off Gulf oil exports,” he asked.
“There is significant doubt that, despite the implications of this latest boycott decision, Tehran will indeed allow such an escalation to take place because it is at present focused on maintaining its nuclear program and wouldn’t let any military action threaten it….. A potentially devastating step such as closing of the Strait of Hormuz is going to be too risky and can have damaging effect on the global economy.”
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