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Oil Prices and Attacking Iran

(Inter Press Service) If U.S. President George W. Bush wants to boost Republican chances of holding on to the White House and keeping Democratic gains in Congress to a minimum...

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(Inter Press Service)

If U.S. President George W. Bush wants to boost Republican chances of holding on to the White House and keeping Democratic gains in Congress to a minimum in the November elections, he might consider taking an attack on Iran before the end of his administration off the table.

Of course, that’s probably the last thing Bush—and his particularly belligerent vice president, Dick Cheney—will do.

But there’s a little doubt that forswearing military action against Tehran should ease the upward pressure on world oil prices—which hit a historic high Monday of more than $143 per barrel before falling back to $140—and thus offer at least some reprieve to the U.S. consumer at a time when record gasoline prices appear to be driving widespread popular dismay with the state of the U.S. economy.

"[I]f this administration truly wanted to spare Americans further pain at the pump, there is one thing it could do that would have an immediate effect," wrote Michael Klare (author of Rising Power, Shrinking Planet: The New Geopolitics of Energy) in this week’s Nation magazine. "[D]eclare that military force is not an acceptable option in the struggle with Iran."

While oil analysts say that prospects of a continuing decline in the dollar no doubt played an important role in Monday’s price jump, they also pointed to this weekend’s pointed reaction by the commander of Iran’s Islamic Revolutionary Guard Corps, Gen. Mohammed Ali Jafari, to recent U.S. and Israeli threats to attack Tehran’s nuclear facilities, as well as his assessment that those threats should be taken seriously, as a major factor.

In addition to retaliating against any regional powers, presumably including Israel, which take part in such an attack, Jafari warned that Tehran would "definitely act to impose control on the Persian Gulf and Strait of Hormuz," after which, he added, "the oil price will rise very considerably, and this is among the factors deterring the enemies."

Indeed, even without an attack, continuing tension involving Iran’s nuclear program will almost certainly contribute to a continued rise in oil prices to as high as $170 per barrel in the coming weeks and months, OPEC’s president, Chakib Khelil, said during a conference in Madrid.

World oil prices have risen by nearly 50 percent since the beginning of 2008 and nearly doubled over the past year. Analysts have argued over how much of that increase is due to structural factors in the world economy—such as growing demand in middle-income countries and the depreciating dollar that would tend to make the price increase permanent—and how much is related to worries about possible supply disruptions arising from the kind of conflict that has plagued the Niger Delta region in Nigeria, terrorist attacks by al Qaeda in the Gulf, economic or other sanctions against key oil producers, or war.

The latter risk factors, according to some analysts in the United States, could account for as much as $50 of the total current price, although most believe that the figure is about half that.

How much is due to the uncertainty about Iran is also a matter of considerable debate. Many point to the unprecedented $11 dollar one-day spike in oil prices—from $128 to $139 a barrel—that took place June 6 after Israel’s Deputy Prime Minister Shaul Mofaz warned that an Israeli attack on Tehran’s nuclear facilities was "unavoidable" if international pressure did not succeed in persuading it to freeze its uranium enrichment program.

While that incident offered the most spectacular suggestion of a relationship between threats against Iran and the price of oil, most analysts believe the effect is somewhat more modest, albeit still quite real.

"I don’t think it would be unreasonable to say it could be a few dollars [out of the current $140 dollars a barrel]," Paul Saunders, an energy expert who directs the Nixon Center here, told the Inter Press Service (IPS). 

And in congressional testimony just last week, Daniel Yergin, a longtime analyst and historian of the oil industry, observed, "You see the Iranians make a … bellicose statement, and you see the price of oil go up $5 or $7."

That is not a new pattern, according to Klare, who said the possibility of a $100-a-barrel price first loomed during the 2006 summer war between Israel and Hezbollah amid speculation that the conflict could spread to Iran. At that time, the price hovered around $75 a barrel before falling back to just over $50 a barrel in early 2007, its lowest point in the last 18 months.

Even though the price retreated after Mofaz’s remarks, events of the past 10 days have helped drive up the price to historic levels. These events include the publication of a front-page New York Times article about a massive Israeli air exercise that purportedly simulated an attack on Iran and a New Yorker article by investigative journalist Seymour Hersh about a $400 million covert action program directed against Tehran; public warnings by U.S. hawks close to Cheney’s office that either the Israelis or the United States would attack Iran between the November elections and the inauguration of a new president in January 2009; and Jafari’s weekend remarks.

Klare believes that the oil markets believe "there’s at least a 50 percent chance that the U.S. and/or Israel will attack Iran before Bush leaves office and that Iran will retaliate [in ways] … that would push oil prices to $200 a barrel and above," which is why speculators are buying oil futures now at $140 and even $150 a barrel.

"The run-up in the price today will only encourage more speculators to get into the act, unless the administration makes clear it has no intention of attacking Iran and will force Israel to make a similar declaration, neither of which is likely to occur," he told IPS.

Meanwhile, the voting public is clearly worried about where oil prices are going. Seven out of ten people told a Los Angeles Times/Bloomberg poll last week that their families had suffered "financial hardship" as a result of the price increases, and more than eight in ten blamed the administration for "not [having] done enough" to ease the impact.

According to a Pew Research Center poll taken earlier in June, three of four voters believe gas prices will be "very important" in deciding whom to vote for—a larger percentage than those who cite terrorism or the Iraq War.

That’s one reason why most analysts rate the chances of an attack by either country before the election as quite low. Others accept Jafari’s logic that the likely impact on oil prices before or after the elections makes an attack improbable.

"I think one of the things that makes [an attack] a lot less likely is what it will actually do to the oil price," said the Nixon Center’s Saunders.

Jim Lobe is the Washington bureau chief of Inter Press Service and a contributor to PRA’s Right Web (http://rightweb.irc-online.org/). He blogs at http://www.ips.org/blog/jimlobe/.

Citations

Jim Lobe, “Oil Prices and Attacking Iran,” Right Web, with permission from Inter Press Service (Somerville, MA: PRA, 2008). Web location:
http://rightweb.irc-online.org/rw/4929.html Production Information:
Author(s): Right Web
Editor(s): Right Web
Production: Political Research Associates   IRC logo 1310 Broadway, #201, Somerville, MA   02144 | pra@publiceye.org

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