High stakes: Obama’s ace, Iranian oil and the 2012 election

Sol W. Sanders

President Barack Obama has launched new international diplomatic poker with “a trailing hand”. It is impossible to exaggerate the forces at play, economic as well as political, foreign and domestic, and their interplay.

When he signed Dec. 31st the latest Iran provisos, Mr. Obama was handed new clout to cut Iran’s energy jugular in an effort to halt its march toward nuclear weapons — and domination of the Persian Gulf with half the world’s oil. Although he has to report back to Congress, the law gives the President unlimited discretion.

President Obama’s ace is permission to go after Iran’s central bank. By indirectly sanctioning dealings with foreigners, theoretically he could bring the mullahs to their knees. He could scramble Iran’s oil exports — the world’s third-largest, about 2.3 million barrels a day, mostly to Asia, bringing in 60 percent of its government’s income. The law permits the president to play a marginal hand, for example dickering for “variances”. [Greece, near default and heavily dependent on Iranian oil, comes to mind.]

Iranian President Mahmoud Ahmadinejad, center, tours the Abadan oil refinery in May 2011. Iran has starkly warned Gulf states not to make up for any shortfall in its oil exports under new U.S. and EU sanctions, adding yet another layer of peril to the international showdown over its nuclear program. /Amir Pourmand/AFP

After the U.S. stopped importing Iranian oil in 1987, Washington blocked U.S. companies and French Total, Royal Dutch Shell and Japanese interests from developing Iran’s enormous energy potential. That’s partly why Iran also faces domestic disaster with 40 percent of its gasoline, 11 percent of diesel, imported. In the murky world of spot trading, two companies supply most imports — one descended from the notorious Marc Rich, given a last minute pardon by President Bill Clinton January 2001 for 1970s illicit Iran trading. Other targets include not only oil majors, but as important, refining equipment makers, insurers, and shipping.

But persuading governments from buying Iran’s crude and selling it refined product may take better cards. True, the European Union — the EU buys about 450,000 b/d — makes encouraging noises about eventually halting purchases. Cautious bankers are backing off financing Iranian imports as Teheran’s storage bulges.

But pressuring Tokyo to end Japan’s declining 10 percent dependence on Iranian imports, suffering shortages because of its earthquake-tsunami damaged nuclear plants, has brought a government split. NATO’s increasingly dubious ally, Turkey, refuses to give up one-third its imports.

When Treasury Sec. Timothy Geithner personally went lobbying, he had to read China’s hand — a third of Iran’s exports fuel 11 percent of its rapidly rising imports, now a third of consumption. Beijing’s blunt refusal to honor sanctions came despite Prime Minister Wen Jiabao setting out to tour Gulf suppliers — pointedly excluding a Tehran stop. Undoubtedly he is checking whether Saudi Arabia and its neighbors, increasingly feeling endangered by Iran’s bellicosity, would throw increased production on world markets. [In fact, given its shakier economic outlook, oil mavim expect Beijing would use sanctions to whittle Teheran’s price.]

Mr. Geithner’s Beijing importuning was further weakened by China’s trade surplus with the U.S. widening in December by 24.2 percent to $17.4 billion. This American vulnerability suggests why Mr. Obama’s fellow players might call any bluff. Added to his having set arbitrary time-limits on Iraq and Afghanistan withdrawal after less than conclusive victory, threatening massive military budget cuts, you see why it will take more than a poker face at 1600 Pennsylvania Ave.

The President is, in fact, reversing his three-year campaign — often waged overseas — to denigrate America’s post-World War II hegemony. Washington responded forcefully to Iranian President Mahmoud Ahmadinejad’s, threat, a probable feint, to close off the third of world oil passing through the Strait of Hormuz. But along with his round of fun and games visiting anti-U.S. Latin American dictators, it has to be taken into account. If nothing else, Mr. Ahmadinejad spiked always highly volatile world oil prices [increasing his own revenue!] at a time of Euro crisis, a stagnant Japan, and America’s staggering unemployment and stuttering recovery. Additional U.S. sanctions would aggravate all this if alternative supply — and decreasing demand because of worldwide recession — doesn’t restrain prices.

Still, answering Republican candidates pounding on Mr. Obama’s unrequited failure to appease Iran begins to take priority at his Chicago political GHQ. Sanctions could be seen as part of a turn of attention away from seemingly continued vulnerability on the domestic economy front. Reminding voters he concluded the hunt for Osama bin Laden as Secretary Hillary Clinton sides with Southeast Asians against Chinese oil and gas claims, as ludicrous as it might have seemed only weeks ago, could be part of a new Obama claim to strong international leadership as a contribution to his electoral success in November.

Sol W. Sanders, (solsanders@cox.net), writes the ‘Follow the Money’ column for The Washington Times on the convergence of international politics, business and economics. He is also a contributing editor for WorldTribune.com and East-Asia-Intel.com.

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