Iran Standoff: Repercussions for the Global Oil Market

Abstract

The pressures on Iran to roll back its uranium enrichment programme have increased with the UN Security Council imposing harsher sanctions and Washington indicating that it is even ready to carry out military strikes on Iran's nuclear facilities. The Iranian leadership, on the other hand, continues to claim that its nuclear programme is peaceful and is essential for producing electricity and helping economic development to meet the needs of a growing population. Iran has threatened that, if attacked, it would retaliate by cutting off its oil exports and even disrupt shipping in the crucial Strait of Hormuz through which most of West Asian oil is transported. Given that Iran is an important producer of energy resources, this stand-off between Iran and the West has raised concerns that it could be a prelude to war, similar to the events that unfolded in Iraq in 2003. This article looks at the potential impact on the international oil market, and specifically on India, if oil supplies are terminated from a major oil exporter. It argues that although disruption of supplies from Iran will not have a major impact on global oil supplies per se, given that Iranian exports comprise only 2.5 million barrels per day, nonetheless the speculative impact on prices could be devastating.