In mid-December, the U.S. military will have only one aircraft carrier positioned in the Persian Gulf region for the first time in two years. At the same time, the Iranian navy said it was kicking off a 10-day exercise in the region. Oil prices spiked when Iran early this year threatened to close oil-shipping lanes in the region. If talks scheduled for December between Tehran and the IAEA turn sour, there exists for Iran the potential to exploit the security vacuum in the region and use its defensive position for geopolitical gain.
The U.S. Navy announced that, for about two months, there will be only one aircraft carrier based in the Middle East region because of unexpected repair work needed on USS Nimitz. A Navy commander said it was the "right thing to do" to leave the military one carrier short in the region, a first since December 2010. At the same time, the Iranian navy announced plans to conduct a 10-day drill to display what Tehran said was a way for the Islamic republic to "display its might and deterrence power."
In January, oil prices were moving fast beyond the $100 per barrel mark in part because of tensions with Iran, which had threatened to shut down the Strait of Hormuz in response to increased sanctions pressure. The U.S. Energy Department describes the strait as the "world's most important oil checkpoint." Last year, about 17 million barrels oil per day traveled through the area, which represented about 35 percent of the world's maritime oil shipments. Iraq, Saudi Arabia and the United Arab Emirates have pipelines in place to compensate for any closure, though each of those has their limitations.
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Traders in January said tensions in the region would certainly lead to an increase in oil prices. While much of Iran's oil heads to Asian economies, the oil market is global, meaning U.S. economic power is linked critically to U.S. defensive power in the Middle East. U.S. Energy Department analysts said any economic uncertainty in the oil markets would have a ripple effect on the global economy.
Iran and delegates from the International Atomic Energy Agency are set to resume negotiations Dec. 13. IAEA Director General Yukiya Amano has said there's "lots" of activity at the Parchin military complex near Tehran. Western diplomats have said they suspect Iran has taken steps to shield what could be illicit nuclear activity at the site. Tehran has said it was opposed to weapons of mass destruction, though Western diplomats have already said they expect few breakthroughs during next month's talks.
Iran could take advantage of the U.S. Navy's brief drawdown in the region to rattle its sabers in the gulf should the IAEA issue a damning nuclear assessment following December talks. With Iran's economy in decline, however, any decision to shut down the Strait of Hormuz could work against, not for, Tehran's favor. Nevertheless, the mere threat of a closure in January was in part responsible for a one-day 4.25 price increase for oil. Iran's naval drills are scheduled to get under way about a week after the IAEA talks. Without a major U.S. defensive bulwark, the Iranians may have the deck stacked in their favor.
By. Daniel J. Graeber of Oilprice.com