Sharing the Pain

By Tony Capaccio
     May 5 (Bloomberg) — Iran may be planning to share the pain
of any U.S. attack with the world’s oil markets.
     A strike against Iran’s nuclear program would probably be
met with an effort to choke off oil shipments through the Strait
of Hormuz, military planners and Middle East analysts say. The
goal would be to trigger a market disruption that would force
President George W. Bush to back off.
     The Iranians hope the mere threat of such action may lead
oil-consuming nations to pressure the U.S. to resolve the dispute
short of a military confrontation. About 17 million barrels of
oil, representing one-fifth of the world’s consumption, is
shipped through the strait every day.

  Roiling the markets would be part of a broader retaliation
that would include terrorist attacks against U.S. forces or other
interests in Iraq and worldwide, said Michael Eisenstadt, an Iran
expert at the Washington Institute for Near East Policy and a
former Central Command analyst.
     “They will not allow us to limit the conflict to `tit for
tat’ — us hitting their nuclear facilities, and they restricted
to hitting deployed American military,” Eisenstadt said in an
     General John Abizaid, the top U.S. commander in the Middle
East, said in a written statement to the House Armed Services
Committee on March 15 that Iran is expanding naval bases along
its shoreline and now has “large quantities” of small, fast-
attack ships, many armed with torpedoes and Chinese-made high-
speed missiles capable of firing from 10,000 yards.
     “Iran’s capabilities are focusing on disrupting oil traffic
through the straits,” Army Colonel Mark Tillman, a professor at
the National Defense University in Washington and former Central
Command planner, said in an interview. “Why else would they have
these things?”

                       Relying on Diplomacy

     The Bush administration has said it will rely on diplomacy
to persuade Iran to halt its nuclear program, which Iran says is
designed to produce electricity but the U.S. suspects is aimed at
producing a bomb.
     John Bolton, U.S. ambassador to the United Nations, told
Congress on May 2 that those diplomatic efforts so far have been
frustrated by Iran’s clout as the world’s fourth-largest oil
     “The Iranians have been very effective at deploying their
oil and natural-gas resources to apply leverage against countries
to protect themselves from precisely this kind of pressure, in
the case of countries with large and growing energy demands like
India, China and Japan,” Bolton said.
     Iran’s top nuclear negotiator, Ali Larijani, has said his
nation won’t rule out cutting oil exports in response to pressure
over the nuclear dispute.

                          Rising Prices

     Escalation of the dispute has helped to boost oil prices by
17 percent over the past two months. The current price of about
$70 reflects potential disruptions over the next six to 18
months, said Jamal Qureshi, lead oil industry analyst for PFC
Energy, a risk-analysis firm in Washington.
     Oil prices Friday rose to $70.63 as threats to Iranian
supplies halted the biggest two-day decline in almost a year.
     Even with that, a military conflict would shock the system
so “you’d very likely get a quick spike that could very easily
go to $100 a barrel,” until the U.S. releases oil from its
strategic reserve, Qureshi said in an interview. “It could get
messy real quick.”
     While Iran probably couldn’t close the Strait of Hormuz —
which lies between Iran and Oman and is 34 miles at its narrowest
point — it could cause havoc by threatening or attacking
individual oil tankers or terminals, analysts said. Oil from
Iran, Iraq, Qatar, Bahrain, the United Arab Emirates, Kuwait and
Saudi Arabia is shipped through the Strait.
     Iran’s Revolutionary Guard-controlled navy “has been
developed primarily to `internationalize’ a conflict by choking
off oil exports through the Strait,” Abizaid, head of the U.S.
Central Command, told lawmakers.

                       `Pressure the U.S.’

     Kenneth Katzman, a terrorism and Middle East analyst for the
nonpartisan Congressional Research Service, said that even if
Iran can’t block the strait, it “can create a sense of crisis to
drive up the price of oil, and presumably” the nations that
consume all that oil “would pressure the U.S. to stand down or
shrink from confrontation or end it quickly,”
     Iran supplies China with 4 percent of its oil; France, 7
percent; Korea, 9 percent; Japan, 10 percent; Italy, 11 percent;
Belgium, 14 percent; Turkey, 22 percent; and Greece, 24 percent,
according to Clifford Kupchan, a director of the Eurasia Group in
Washington, a global risk-consulting group.
     These figures “tell me that Iran for the foreseeable future
will have considerable `petro-influence’ over prospective U.S.
allies,” Kupchan said in an interview.

                        Terrorist Attacks

      Eisenstadt said disrupting world oil markets might not be
Iran’s “preferred avenue of response” if attacked. “I think
they are more likely to respond in Iraq by launching terrorist
attacks,” he said. “Disrupting oil shipments is a far second or
third, but this is something we have to prepare for.”
     W. Patrick Lang, formerly the chief Middle East analyst at
the Defense Intelligence Agency, said Iran “could unleash the
Shiites en masse in Iraq, and kicking that up would place us in a
very different position there. You would have a lot of people out
there in the streets with rifles.” Shiite Muslims make up 89
percent of Iran’s population, and are a majority in Iraq.
    Rear Admiral John Miller, deputy commander of U.S. naval
forces in the Gulf, said, the U.S. has “the capability to keep
the straits open and clean them up if that should be required.”
     “We understand the importance of keeping all the choke
points” open “and commerce moving,” Miller said in a telephone
interview May 3 from Manama, Bahrain.

                        Missiles and Seals

     The U.S. and coalition partners have about 45 vessels in the
Persian Gulf and Red Sea region, including the USS Ronald Reagan,
the Navy’s newest aircraft carrier, and five escorts, including
the USS Tucson, an attack submarine that can fire new tactical
Tomahawk cruise missiles and launch Navy Seal commandos.
      Lang said the U.S. military, in a conflict, “would be all
air and naval, with no ground operation.”
     “Iran might surprise the U.S. by sinking a tanker in the
gulf or something and then the U.S. Navy would beat the bejesus
out of them, but they could cause a spike in oil prices for a
month or two,” Lang said in an interview.

–With reporting by Jeff St.Onge in Washington. Editor: Schmick

Story illustration: See {TNI IRAN NUK BN <GO>} for stories about
Iran’s nuclear program. {CL1 <Cmdty> GPO <GO>} graphs oil prices
in New York. {ETOP <GO>} shows Bloomberg’s top energy stories.
{CLA <Cmdty> CT <GO>} shows a table of crude oil contracts
trading on Nymex.

To contact the reporter on this story:
Tony Capaccio in Washington (202) 624-1911 or

To contact the editors responsible for this story:
Ken Fireman at (1) (202) 624-1978 or

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23 Responses to Sharing the Pain

  1. angela says:

    Currently supply is so tight that the withdrawal of Iran’s oil alone would send prices surging. Southern Iraq would probably join.
    Venezuala and others might too. Who knows?
    Iran has said it will not use oil as a weapon and since it is vying for moral leadership in the region may attack others, but the fear will raise prices probably over a hundred.
    This will hit stock markets and quite possibly collapse economies. The US with it’s high debt and declining real estate market is vulnerable. Comments of Volkner, Buffet and others indicate a fragility exceeding that of the seventies.
    Just based on cycles stock market declines and a recession ending this anemic keynesian driven recovery are due.

  2. MarcLord says:

    US stock markets are not reflecting escalating risk, and the Fed is manipulating the indices via derivative purchases. Here’s a good primer on how they’re doing it:

  3. ali says:
    “The experience of recent years and the forecasts for the coming years have created a sense of strategic vulnerability among Chinese leaders. China’s reaction over the past decade has consisted, first of all, in trying to increase the security and reliability of oil imports by searching for new supply sources, and to control imports and transport routes, while also boosting national oil production at any cost.”
    With that in mind I can’t see Bejing being very happy if the Mullahs close the Strait Of Hormuz. It’s not just Iran’s oil they’ve got their mits on; Saudi is now Chinas biggest source of oil imports.
    The Mullahs could find their increasingly powerful friend ruthlessly seeking their destruction and that could be the end of them.
    This is a frightening weapon with great potential to deter an attack by a global power but it will probably only to be used if the regime is under existential threat. Bombing their nuclear program will probably revive the flagging Islamic Revolution.
    Other means offer a more satisfying revenge with fewer risks: Iran has formidable terrorist assets and as Riverbend wrote recently, there are 150,000 potential US hostages in Iraq.

  4. MarcLord says:

    Col. Lang,
    I don’t think it likely that Iran would seek to close the Straits, nor that it could successfully project the necessary sustained force to do so. However I don’t understand why in this article you seemed tactically optimistic about being able to keep the Straits open past a 1-2 month disruption. The terrain and intelligence capability would seem to greatly favor Iran if they chose to employ terrorist-style low-tech ops to sabotage and sink tankers.
    It would be foolhardy of them to lift a military finger against our fleet, and the more I learn about them, the less they strike me as foolhardy. So is tanker terrorism not a viable or sustainable threat? I don’t know enough about the vulnerabilities in the chain, but to me tankers look to be about the fattest, juiciest targets on earth. If nothing else, you gotta park ’em to fill ’em, and there’s only so many tankers to go around.
    It would seem like they could achieve selectively disruptive effects without closing the Straits, similar to the 1979 oil embargo, when taking 4% of supply off-tap caused a 150% price increase at US pumps before supply could be re-routed to the US through Europe. As for selectivity, I presume they would easily know which tanker was bound where, but again my operational ignorance in this area knows no bounds.

  5. ckrantz says:

    The problem as I see it is not a potential nuclear Iran in even in a year or two but Iraq. It doesn’t seem sensible to attack from such a weak position strategically in the Middle East. United States has the far superior military but that is the only card it has to play. Why not open negotiations on all issues including Iraq? It would mean recognizing the islamic republic but that is the cost of the current folly.

  6. Brad says:

    Some <“>photos and video from the last time U.S. and Iranian forces clashed.

  7. taters says:

    Thanks Brad.

  8. W. Patrick Lang says:

    Damage to one frigate does not mean you lost the campaign. pl

  9. zanzibar says:

    Assuming our military can bomb the crap out of Iran with non-stop air and naval attacks, what would be the end game? What is the objective that we can know when it has been achieved?
    This is what I don’t seem to get. Of course I am no geopolitical strategist.

  10. Babak Makkinejad says:

    I agree with you.
    I do not believe US will achieve any geopolitical gains in case of a war of choice against Iran; US cannot win (cannot dictate the terms of peace) and Iran will not loose (the Iranian State will not capitulate.)
    To win decisively against Iran, US has to kill between 5 to 7 percent of the Iranian population. This is between 3 to 5 million people. Without using nuclear weapons against civilian targets, that is not possible.
    I think, in case of such a war, US government will state that “We taught Iran a lesson!” and the Iranian government will say:, “We resisted a superpower successfully!”. In my opinion, this will be a repeat of the short China-Vietnam War of 1979 with very similar geopolitical consequences (Vietnam is now quite happy to have US engaged in South-East Asia as a counter-weight to China.)
    In my opinion, besides the obvious consequential gains that such a war bestows on Russia, China, India, Israel, and a few others, there is also this huge loss to US: namely that the United States will have declared itself to be at war will all of Islam.

  11. jonst says:

    On a slightly different note…I think this latest disaster, the downed Brit copter, is going to spell doom to our entire efforts there. Given the vivid photos ops, and the background of the story, lessons drawn from it, it will turn out to be a mini-Black Hawk down episode. I believe this will be the tipping point. The few Americans left that don’t want us out now will throw up their hands and say “screw it”.

  12. ckrantz says:

    Something no one seems to mention is if a bombing campaign would be effective in preventing Iran from developing nuclear weapons. Equipment to quick start a nuclear program could have been stored elsewhere out of the country. The only way to be sure would be regime change which I suspect is not politically possible today.

  13. Babak Makkinejad says:

    I agree with you.
    But states go to war for emotional reasons as well as for ostensibly rational ones.

  14. W. Patrick Lang says:

    Far too cute. you don’t run programs like this with some old crap stored in a cave. pl

  15. jonst says:

    Am I to take it that our govt will completly dismiss the first ‘offical contact’ from the govt of Iran, as ‘nothing new’?

  16. jonst says:

    Clarification please. First ‘offical contact’ from the Pres of Iran’s office to the American president.

  17. Curious says:

    US stock markets are not reflecting escalating risk, and the Fed is manipulating the indices via derivative purchases. Here’s a good primer on how they’re doing it:
    Posted by: MarcLord | 05 May 2006 at 01:53 PM
    Dude, The stock market is being pumped. that thing is gonna pop if the big money bails out.
    It’s that simple.
    (dow didn’t go anywhere for years, and suddenly it perks up in the last several weeks? why? lol.)
    It’s free money. cash in, then get out before the party is over. It’s that simple.

  18. Curious says:

    Condi eff up. (highly predictable. Back at european table? This after Rice acting as if, with last european effort before transfering it to Russia? …and now back to europe… we all gonna die because of these dumb asses. Iran is playing for time!)
    So now, we gonna have high oil price for at least another 3-4 weeks. Summer is already here, poll are at 31%.
    Things are gonna blow for sure.
    The initiative announced Tuesday — and the fact that it was backed by the United States — reflected the Bush administration’s inability to persuade Security Council members Russia and China to back a United Nations resolution that takes a tougher line with Iran, including an implicit threat of sanctions.
    Secretary of State Condoleezza Rice held a dinner meeting Monday night with Security Council members in another attempt to gain agreement on a more forceful approach. But diplomats said Moscow remains strenuously opposed on grounds that such a resolution could lead to military action.

  19. Curious says:

    To win decisively against Iran, US has to kill between 5 to 7 percent of the Iranian population. This is between 3 to 5 million people. Without using nuclear weapons against civilian targets, that is not possible.
    Posted by: Babak Makkinejad | 06 May 2006 at 11:07 AM
    no, the very problem is defining “what is winning”
    if winning is defined ast stopping ‘Iran’ period. That’s no problem. we just bomb the whole thing. But then what? we have some 40million pissed off people, plus a region that flip on us, not to mention global opinion. that on top of us, not getting the Iranian oil since we bomb all the facilities.
    If we define winning as ‘compliance’ there is no need for militar force. Deal with Israel plus promise to turn Iran into radioactive glass if they mess the deal. That’s one viable and real solution.
    without war. But we have neocon in the office. no sane diplomats will take Condi’s words. She has no credibility.
    So… hence we are in LImbo. There are solution, but the cost is expensive. And doing nothing is easier.
    My conclusion, Iran win, they play for time and they got their time. By Christmas they should have their nuke.
    And the game will be different from then on.

  20. Curious says:

    In case everybody is still thinking the war with Iran is about lobing balistic missile.
    This is the frontline.
    dollar purchasing power
    (note: must check all number)

  21. Curious says:

    whoa, somebody is really thinking hard how to whack Iran with ballistic missiles. Except it will also blurr the ability to differentiate nuclear launch or conventional.
    yep, we are right back at cold war again. The conflict in Iraq has now spread all the way up to world powers.
    (so it all begin with 9/11, then Iraq, recently escalating diplomatic row with Iran, now we pick a fight with Russia/China over Iran.
    hey, let’s start WWIII, why don’t we. launch those SLBM see what China and Russia will do.)
    Kremlin expresses alarm at US missile plans
    MOSCOW (Reuters) – A top Kremlin aide said on Thursday that reported moves by the United States to equip some strategic rockets with non-nuclear warheads were “irresponsible” and “extraordinarily dangerous” for Russia.

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