Iran Finally Blinks in Terms of Sanctions Pressure

The Iranian defense minister said last weekend that his country has no plans to choke of maritime oil shipments through the Strait of Hormuz. In early 2012, Iranian threats to close the key shipping lane caused a ripple effect in the international oil market, pushing prices up to historic highs. U.S. President Barack Obama in April acknowledged there were problems in the global oil market but said the situation was secure enough to move ahead with tighter sanctions against Iran. An announcement from Iran that it was no longer considering closing the strait, however, may suggest western sanctions may be taking a toll on Tehran.

Iranian Defense Minister Brig. Gen. Ahmed Vahidi said Iran no longer has plans to close the Strait of Hormuz, a conduit for much of the world's maritime oil shipments. Sanctions imposed by the U.S. and European governments, he said, were "unjust," but his country as able to move beyond them.

"These two issues (closure of the Strait of Hormuz and sanctions) are not related and are totally independent of each other," he said.

His remarks are on stark contrast to when Iranian naval Cmdr. Ali Fadavi said in July that not even "a single drop of oil" would pass through the Strait of Hormuz if the Islamic republic were backed into a corner. Threats to close the strait are nothing new. Obama, coping with oil prices about the $100 per barrel mark in April, was forced to lather his talks of new economic pressure on Tehran with references to a release from the Strategic Petroleum Reserve. With Hurricane Sandy shutting down most of the eastern seaboard, including refineries in the region, movement in Monday's markets had little, if anything, to do with Iran.

Related Article: Countries Start to Resume Trade with Iran Using Gold to Avoid US Sanctions

Sanctions on Iran have forced the country to look inward in terms of its economy. Under the Ahmadinejad administration, imports have increased from $39 billion when he took office in 2005 to more than $57 billion. Now, the government is trying to curb what can and what can't be purchased on the foreign markets. The Iranian president had blamed Western sanctions for the 80-percent decline in the value of the national currency, the rial, during the past year. During the weekend, however, Ahmadinejad struck a more defiant tone, saying "Iranian designing, knowledge and engineering" have reached an advanced stage "in a short period of time."

In mid-October, now disputed reports suggested Iran would trigger a massive oil spill in the Persian Gulf in order to force the hand of the global oil markets. The International Energy Agency, in an early October estimate, stated Iran had exported 860,000 barrels of oil per day, a significant decline from the 2.2 million bpd reported at the end of last year. Tehran disputed those figures, saying the government has managed Western pressure on its energy sector for a generation while remaining a key player among members of the Organization of Petroleum Exporting Countries. Former Iranian Oil Minister Masoud Mirkazemi, for his part, said Tehran still had some cards to play in terms of oil.

"The Westerners should know that if they want to use this tool for political purposes, the possibility exists that one day this tool will be used against them, and then they will suffer," he said.

It appears, however, that nobody is listening.

By. Daniel J. Graeber of Oilprice.com