Iran holds oil weapon

Iran threatens to block oil exports through Hormuz strait in sanctions row

Country reacts to threat of sanctions on its crude oil after UN watchdog's report into state's nuclear ambitions

the Guardian, 27 December, 2011

Iran threatened on Tuesday to stop the flow of oil through the strait of Hormuz if foreign sanctions were imposed on its crude exports because of its nuclear ambitions.

Western tensions with Iran have increased since a report last month by the UN nuclear watchdog saying Tehran appeared to have been working on designing an atomic bomb and may still be pursuing research to that end. Iran strongly denies this and says it is developing nuclear energy for peaceful purposes.

Iran has defiantly expanded its nuclear activity despite four rounds of UN sanctions meted out since 2006 over its refusal to suspend sensitive uranium enrichment and open up to UN nuclear inspectors and investigators.

Many diplomats and analysts believe only sanctions targeting Iran's lifeblood oil sector may be painful enough to make it change course, but Russia and China – big trade partners of Tehran – have blocked such a move at the UN.

Iran's warning came three weeks after EU foreign ministers decided to tighten sanctions over the UN report and laid out plans for a possible embargo of oil from the world's fifth biggest crude exporter.

"If they [the west] impose sanctions on Iran's oil exports, then even one drop of oil cannot flow from the strait of Hormuz," the official Iranian news agency IRNA quoted Iran's first vice-president, Mohammad Reza Rahimi, as saying.

EU ministers said on 1 December that a decision on further sanctions would be taken no later than their January meeting. EU countries take 450,000 barrels a day of Iranian oil, about 18% of its exports.

China, the biggest buyer of Iranian crude, has warned against "emotionally charged actions" that might aggravate tension in the nuclear standoff with Iran.

Russia for its part has warned against "cranking up a spiral of tension", saying this would undermine the chances of Iran co-operating with efforts to ensure it does not build atomic bombs.

About a third of all sea-borne oil was shipped through the strait of Hormuz in 2009, and US warships patrol the area to ensure safe passage.

Most of the crude exported from Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq must slip through the strait, a four-mile wide shipping channel between Oman and Iran.

Some analysts say Iran would think hard about sealing off the strait as it could suffer just as much economically as western crude importers.

Industry sources said Saudi Arabia and other Gulf Opec states were ready to replace Iranian oil if further sanctions halted Iranian crude exports to Europe.

The Iranian oil minister, Rostam Qasemi, had said that Saudi Arabia had promised not to replace Iranian crude if sanctions were imposed.

"No promise was made to Iran, it's very unlikely that Saudi Arabia would not fill a demand gap if sanctions are placed," an industry source familiar with the matter said.

Gulf delegates from Opec said an Iranian threat to close the strait would harm Tehran as well as the major regional producers that also use the world's most vital oil export channel.

"If the sanctions take place the price of oil in Europe would increase and Saudi and other Gulf countries would start selling there to fill the gap and also benefit from the higher price," said an industry source, who declined to be named.

Brent crude oil futures jumped nearly a dollar to over $109 a barrel after the Iranian threat, but a Gulf Opec delegate said the effect could be temporary.

"For now, any move in the oil price is short-term, as I don't see Iran actually going ahead with the threat," the delegate said.