Sooner or later Iran will get the memo. President Ahmadinejad is bent on holding his ground in the face of a myriad of international sanctions being lashed out at the Middle Eastern country. It often doesn’t take much for even the most hard-line leaders to feel the pinch of an embargo.
The only twist here is that Iran is betting on a potential global oil crisis as the deterrent to any real international pressure. Furthermore, from Iran’s point of view, demand for oil will exist elsewhere [Asia]; hence any shortfalls from US and EU will be offset by Asia’s growing demand.
For starters, oil prices rose above $110 right after the European Union jumped on the “sanction train” against Iran. The United States already stated its position on grinding Iran into submission, and at least the Obama administration is making it a priority to reduce America’s reliance on foreign oil supply. Shale gas and natural gas will fill some of the void – understandably so - but unless there is a real energy game changer like the Keystone XL (currently wrangling through a political tug of war), countries like Iran will always have a voice in the matter.
The EU stance was critical especially since it is Iran's second-largest oil customer after China. However, the Chinese march to an entirely different tune, and so no one should be counting on them to abandon Iran anytime in this century.
For all the reasons above, we can expect the impact of the restrictions and embargo to affect market forces, with basic demand and supply curves shifting towards countries that can bear bilateral pressure, and for those whose economy cannot afford a reduction in oil supply.
Lest we forget, Iran is very aware of its key chess piece in this drama, - the Strait of Hormuz. Last week, it threatened to disrupt the activities of strategically important strait between the Gulf of Oman in and the Persian Gulf. It is the only sea route for large petroleum-exporting tankers and a potential choke point the world cannot afford.
At the end of the day, it helps to focus on the big picture, and to know that the world is at a point of painful tradeoffs. No easy options. My point, - there is an old adage “when elephant go to war, it is the grass that suffers the most.” The rest of the world might feel the pinch at the gas pump soon enough, but will averting a nuclear drama from an unpredictable Mahmoud Ahmadinejad be enough of a consolation prize?
