Iranian lawmakers this week expressed support for a measure that would beat the European Union to the punch by cutting off oil exports before the summer. Tehran's measure amounts to a statement of economic warfare to some degree as the European economy continues to drag on the rest of the global market. Yet, if Iran is shipping only 20 percent of its oil to European markets, its more than likely the Europeans would be able to weather the storm.
European lawmakers voted to ban any new crude oil export contracts with Iran and put existing contracts on hold as part of the cat-and-mouse game over Iran's perceived nuclear ambitions. Iranian lawmakers, for their part, said the Europeans might not have to wait very long because Tehran could cut oil exports first, so there! Iran exports about 2.2 million barrels of oil per day, or roughly 20 percent of its total output, to European consumers. The last time a significant volume of crude was cut off from the world market, the International Energy Agency stepped in with strategic oil reserves. This time, however, Iran, considering its penchant for touting its vast consumer base, will likely send that 20 percent somewhere else.
Cue Riyadh. Saudi Arabia, certainly no friend to the Iranians, said getting more oil to the markets in the event of Iranian crude oil shortage is simply a matter of turning the proverbial knob to 11, though in this case, the sustain relates to a stable oil market. Riyadh already gave assurances to South Korean leaders this week that Seoul could easily get by without Iranian crude.
But what about Europe? Europe needs to worry about higher oil prices like a dog needs fleas. The International Monetary Fund, in a report from January, warned that a halt of Iranian crude oil exports to the eurozone would push oil prices up as high as 30 percent. A European economy, where a lingering Greek debt crisis drags on world markets almost as predictably and with as much regularity as the bell rings at 9:30 am on the New York Stock Exchange, can't stomach a $20 or so increase in crude oil prices. Yet, the IMF said the shock wouldn't last long as "other producers or emergency stock releases" bring some relief "over time."
Iranian President Mahmoud Ahmadinejad was summoned before lawmakers this week to answer questions about his economic policies. While that's likely an issue leftover from when one of his top aides was accused of sorcery, of all things, it may be an indication Iran is starting to feel the economic pinch. Tehran, for what it's worth, is already forced to play three-card monte in order to get India to pay for its crude oil shipments. Sure, the Iranians are good at the diplomatic game, playing ball with weapons inspectors just enough to keep working on *ahem* medical isotopes. But the world has more or less brushed off Iran's threats to close the Strait of Hormuz, so if Tehran doesn't want to play nice with the Europeans, fine, let them pout.
By. Daniel J. Graeber of Oilprice.com