It is as clear as day that
President Trump is obsessed with regime change in Iran. What is not made clear is how much his gambit
is damaging to Americans and American interests.
Without cause or
justification, Mr. Trump pulled out of the
Joint Comprehensive Plan Of Action (JCPOA), striking a hard blow to America’s
European allies – and its own credibility.
Moreover, he threatened European countries with secondary sanctions
should they continue to trade with Iran.
To top it all, in his
latest move, he has called for all Iranian oil exports to be cut off by
November. Or in practical terms, he is imposing an economic blockade on
Iran. This is a similar scenario that
was played out by the British in 1951 against Iran and Dr. Mossadegh – who was
later overthrown in the 1953 British-US coup. But today, the IR of Iran is not
the Iran of 1953, and the brunt of American demands and actions will not be
borne by Iran alone.
Demanding that no country
purchase oil from Iran is in fact an economic blockade. It is an illegitimate use of power to force a
sovereign nation to surrender. It must
be made clear however, that it is not just Iran that is the target here. The Trump administration’s demands are an
offensive exercise of extraterritorial authority with no regard for sovereign
equality between states. All states involved in trade with Iran will either
have to cower to his demands or be punished.
But there is more than
state sovereignty and indignation that is involved. These actions will have a
dire effect on the economy of allies, and they will hit Americans in the wallet
– hard. If Mr. Trump is giving a
November deadline, he hopes to postpone the impact this will have on the
November elections. He wants total rule
over America before totally bankrupting it.
To fully appreciate how Mr.
Trump intends to make ‘America great again’ where his policy regarding Iranian
oil is concerned, one must take a look at some numbers and empirical evidence.
The oil strikes leading up
to the toppling of Iran’s Shah were felt around the world. During the 1978-79 revolution, Iranian oil
production dropped 3.8 million barrels per day for 3 months. Although outside production increased by 1.8
million barrels to make up for the loss, the net loss to the world was 150
million barrels of oil. However, the
compounding results of the production loss were significant around the globe.
Many Americans may recall
the lines at the fuel pumps, but that was just what met the eyes. The increase in oil prices impacted farming,
production, transportation of goods and services, and so on. At that time, China, currently the second
biggest oil consumer behind America, was a net exporter of oil. The loss to U.S. economy was estimated at
many billions of dollars in 1979 and 1980 (Deese and Nye 308-309)[i].
More recent studies show that Iranian oil has a
major impact on the U.S. economy even though America does not import a single
barrel of oil from Iran. In 2008, economists Dean DeRosa and Gary Hufbauer presented a paper
in which they claimed that if the United States lifted sanctions on Iran, the
world price of oil could fall by 10 percent which would translate into an
annual savings of $38-76 billion for the United States[ii].
But sanctions alone were
not responsible for oil price hikes in 2008 and beyond. In July 2008, oil had reached a peak of
$142.05/bbl (see chart HERE). This price hike came on the heels of some important
events. In May, President Bush sent a ‘warning message’ to Iran on the same day that additional aircraft carriers with
guided-missile destroyers were sent to the Persian Gulf.
In June of the same year, the New York Times reported that: “Israel carried out a
major military exercise earlier this month that American officials say appeared
to be a rehearsal for a potential bombing attack on Iran’s nuclear facilities.”
It was not until September
2008 when President Bush declined to help Israel attack Iran that oil prices started to relax. They hit a low of just over $53 /bbl in
December 2008.
Oil prices continued to
rise again under Obama’s sanctions and reached well past the $100 mark. The prices climbed down once again during
the JCPOA negotiations reaching an all time low of $30.24/bbl in January 2016 –
after the signing of the JCPOA.
Today, oil prices stands at
$74.30/bbl. A fact not lost on any
American who has filled up his/her gas tank lately– and paid for
groceries. The deadline for Iran oil
cut off is yet months away, but the impact has started.
Given that other countries
may step in to compensate for some of
the Iranian oil loss, other factors which effect prices must be considered –
the most important of which is the security of the Strait of Hormuz. As mentioned previously, the British oil
blockade scenario of 1951 will have far different consequences in 2018 should
America impose an economic blockade or oil embargo.
In the 1950’s, Iran did not
have the military might to retaliate to the oil embargo and the naval blockade
was aimed at crushing the economy in order to bring about regime change. This
economic blockade, should it be allowed to happen, would crush the economy of
much of the world.
As it
stands, 35% of seaborne oil goes through the Strait of Hormuz 85% of which goes
to Asian markets. As the US Energy Information
Administration (EIA) has stated: “The blockage of
the Strait of Hormuz, even temporarily, could lead to substantial increases in
total energy costs.” Today, Iran not
only has the military might to block the Strait of Hormuz in retaliation, but
it also has the legal right.
The 1982
United Nations Convention on the Law of the Sea (UNCLOS) stipulates that
vessels can exercise the right of innocent passage, and coastal states should
not impede their passage. Under UNCLOS framework of international law, a
coastal state can block ships from entering its territorial waters if the
passage of the ships harms “peace, good order or security” of said state, as
the passage of such ships would no longer be deemed “innocent”[iii]. Saudi Arabia and the UAE export oil through
Iran’s territorial waters. Should they
help America choke Iran’s economy, their passage is not deemed ‘innocent’.
Even if Iran simply chooses
to merely delay the passage of tankers by exercising its right to inspect every
hostile oil tanker that passes through the Strait of Hormuz, such inspections
and subsequent delays would contribute to higher oil prices.
No doubt, the Iranian navy is
no match for the formidable US navy.
However, the shallow, narrow waters of Hormuz do not allow for the
maneuvering of US battleships. The very
presence of warships can lead to incidents.
At its narrowest
point, the Strait of Hormuz is 21 miles wide – hardly wide enough for a naval
battle to take place and allow the passage of oil tankers at the same time. In recent years (2012), the USS Porter, a US navy
destroyer, collided with an oil tanker in the Strait of
Hormuz. The collision
left a big whole in the navy destroyer.
American officials and oil
companies have attempted to assuage the concern of over oil shortages by stating
that America is one of the top oil producers.
Some fact checking is in order.
According to EIA’s latest
available data, America’s total exports
in 2018 (thousands of barrels/month) was 7,730 bbl in April. The same governmental body stated that total
imports for the same month was 310,295. According to the EIA: “In 2017, the United States produced about 15.4 million barrels
of petroleum per day (MMb/d), and it consumed about 19.9 MMb/d. Imports
from other countries help to supply demand for petroleum.” (Click HERE for explanation of imports and exports).
These facts do not
stop the spread of such news. As
recently as June 4, 2018, Offshore
Technology announced America is marching toward being the
biggest oil producer. Important
factors to bear in mind are that 1.
America is the largest oil consumer and continues to have a deficit, and
2. Shale oil production is up thanks to higher oil prices.
While
environmentalists objected to shale oil production, oil companies halted the
extraction of oil when prices dropped. Anything above $50/bbl makes shale oil
production feasible – which also makes it more expensive of the consumer. Although Mr. Trump and his administration
have no regard for the environment, many states and countries have banned shale
oil production (see LINK for list as of December 2017).
So the American people (and
much of the rest of the world) is left with a stark choice. Either cave in to Mr. Trump’s demands, accept
loss of business, pay much higher oil prices at the pump and for consumer
goods, prepare for a potential war, and sacrifice the environment – especially
water, and mortgage the future of the earth more than we already have, or,
don’t heed Trump’s demands – even if means a short term loss.
Either way, messing with
Iran’s oil exports is not an alternative that the world can afford. It may well be that Mr. Trump is beholden to
Mr. Netanyahu. He may well feel
comfortable enough to subject the American people – and their allies to
financial hardship; but the question is will Americans and the rest of the world
sacrifice themselves at the Trump-Netanyahu altar?
[i]
Deese, David A. and Joseph S. Nye, ed. Energy and Security. Cambridge: Balllinger Publishing Co.: 1981.
[ii] Dean A. DeRosa & Gary Clyde Hufbauer. Normalization of Economic Relations
Consequences for Iran’s Economy and the United States. National
Foreign Trade Council 2008
[iii]
Martin Wahlisch, The Yale Journal of International Law, March 2012, citing
UNCLOS, supra note 12, , art. 19,
para1, and art. 25, para1.
