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Oil Blockade Would Be Double-Edged Weapon To Iran

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By GEORGE JAHN, The Associated Press

Published: December 2, 2007

VIENNA, Austria - Iran's potential to shut down nearly 40 percent of the world's oil trade represents a weapon possibly more powerful than its missiles, gunboats or any arms system Tehran claims to possess.

Such a move, however, would cut both ways in any possible military showdown with the United States.

The Islamic Republic's overwhelming dependence on revenue from its crude exports means it could end up suffering a sharp and self-inflicted blow if it turns off the spigots and blocks Persian Gulf supply lines.

Oil remains near historic heights, and jittery markets jump at any sign that supplies could grow tighter, spiking at every hint of new tensions over Tehran's nuclear defiance.

Recent increases, however, pale compared with the once-unthinkable levels that could be reached - experts speak of up to $200 a barrel - if Washington and Tehran move toward open conflict.

"The oil market is already psyched up because of Mideast tensions," says petroleum analyst John Hall, at John Hall Associates in London. "If an OPEC country like Iran is attacked for whatever reason, the market will go berserk. The oil price could head anywhere."

Blockade Threat

Iran sells 2.5 million barrels of oil a day, making it the Organization of Petroleum Exporting Countries' second-largest producer. Any decision by Tehran to yank that supply off the market would by itself propel prices steeply upward.

Iran also could squeeze supplies even further by trying to choke off the Strait of Hormuz, the narrow mouth of the Persian Gulf, that serves as the transit route for more than 30 million barrels of oil a day, or nearly 40 percent of the world's supply.

An additional daily 2 million barrels of oil products, including fuel oil, move through the strait, as well as tankers carrying liquefied natural gas.

Iran's supreme leader, Ayatollah Ali Khamenei, has threatened to shut the strait in response to U.S. military pressure. His naval commanders claim to have an array of high-tech weapons including a superspeed torpedoes and a sonar-evading, antiship missile.

U.S. military officials and independent experts are skeptical.

Anthony Cordesman, of the Washington-based Center for Strategic and International Studies, writes: "Iran has made so many grossly exaggerated claims about its weapons developments in the past that it seems they were designed more to try to deter U.S. military action and/or reassure the Iranian public."

War Could Not Shut Strait

Iran already has deployed antiaircraft and antiship missiles on Abu Musa, an island near the strait's shipping lanes.

With the USS Enterprise carrier battle group already in the region, and Navy minesweepers and other support vessels ready for quick deployment, Cordesman estimates a full Iranian blockade could not last more than two weeks.

The passage was navigable during the 1984-87 "Tanker War" between Iran and Iraq, during which each side fired on the other's oil tankers - and sometimes on foreign flagged ships. Still, the hostilities led to a 25 percent drop in shipping in the region and forced the United States to secure shipping lanes.

"The problem is not Iranian oil alone," said Michael Klare, author of "Blood and Oil: The Dangers and Consequences of America's Growing Petroleum Dependency." "People can live with that for a while. The question is if - and for how long - Iran can disrupt the flow of oil from other countries."

To accomplish that, Iran has weapons at hand beyond a Strait of Hormuz blockade that could account for serious cumulative damage.

Tehran, for instance, could opt to use its suspected influence among Shiite militias in neighboring Iraq. Sabotage of oil pipelines and facilities could cripple much of Iraq's oil exports, now at close to 2 million barrels a day.

With the world already consuming close to all the oil being produced, an Iranian and Iraqi shortfall approaching 4 million barrels a day would leave demand far outstripping supply.

Iran, however, also would pay a hefty price if the petrodollars that now represent 80 percent of export revenues are reduced, potentially stirring civil unrest in a nation with an official unemployment rate of 14 percent, but which some say could be far higher.

"They would shoot themselves in the foot," said Mustafa Alani, director of national security and terrorism studies at the Dubai-based Gulf Research Center. "It's one thing to test the market psychology, it's another to take the actual step and stop oil exports."

The U.S. Department of Energy estimates oil exports finance about half of the Iranian government's budget. Also, while high oil prices have boosted the annual growth rate to about 5 percent, Iran's economy has weak spots from trade restrictions on sensitive technologies.

They include U.N. sanctions levied as a result of its refusal to halt uranium enrichment, decades of slowly tightening U.S. economic restrictions - including tough new sanctions against Iran's military, banks and industries Washington imposed last month - and reduced trade and financial links with Europe due to U.S. pressure.

Oil consuming nations, meanwhile, have at least one ace up their sleeves: crude reserves. The United States and other members of the International Energy Agency last year had a combined 1.48 billion barrels of oil in their emergency stocks. That's equivalent to about 600 days of Iran's net oil exports.

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