Iran debates whether or not to close Strait of Hormuz

Anissa Ford's picture

Iran isn't exactly threatening the Western world with crude oil prices between $120 - $150 per barrel.

But its Deputy Oil Minister told Islamic media yesterday oil price increases as high as $150 per barrel are likely in the future. What's ironic, however, is that while Iran prepares to soak up lost revenue as a result of the EU ban on Iranian imports, Iran also says it's debating whether or not to stop exporting oil to Europe altogether.

Iran's price increase announcement comes at the same time a CNN economic analyst predicted the United States could see gas prices exceed the $4 mark.

It should be noted however that over the years, CNN analysts have predicted gas price increases before, but only a few (three) of those predictions were accurate. Currently, the price of a gallon of milk in the United States exceeds US gas prices.

Iran anticipates raising its oil prices in response to the European Union's ban on imports of Iranian crude. Banning oil exports to Europe seems more of a retaliatory measure against the EU. The EU isn't happy with Iran's alleged relentless pursuit of nuclear weapon development. Iran says it isn't developing nuclear weapons, but that the nation is using nuclear power to distribute energy to its citizens.

Last week, the European Union passed an embargo on Iranian imports to pressure Iran into slowing down its nuclear enrichment program. The strict embargo targets Iran's source of funding for its nuclear development program.

Even as Iran denies that it's developing a nuclear warhead program, other sources say there is definitely nuclear weapon activity occurring in Tehran. The United States has joined the EU embargo. And currently US and the EU are urging Asian countries to join in the import ban on Iran's crude oil.

Iran's deputy oil minister is threatening an increase in oil prices per barrel (currently oil barrels are sold at $111.00 or so) , even though the EU says its import ban would have a slow effect on the Iranian economy. The ban on Iranian imports doesn't take full effect until July of 2012--which means many current contracts between Iran and the 27 states of the European Union will be honored for the next five months.

But Iran isn't saying when it expects to increase the price of its crude per barrel. And nor does the country appear interested in discussing curbing its nuclear weapon interests.

Iran is, in the coming days, expected to debate whether or not it wants to pursue a halt of exporting oil to European countries. Iran's formidable position in the global oil trade rests largely on its location in relation to the Strait of Hormuz. Iran's north coast sits on the Strait of Hormuz and 20 percent of the world's oil is exported from Iran. In 2011, 17 million barrels of oil passed through the Strait of Hormuz each day.

Iran's debate next week on whether or not to ship oil to European states is largely interpreted as a threat to stop traffic in the Strait of Hormuz.

Iran's dominant relationship to the Strait and its threat to stop exporting oil is a particularly strategic, if not hardball response to the EU's ban in the effort to halt nuclear weapon development. Right now, Middle East instability --in Yemen, Libya and Syria has reduced the amount of oil those nations are capable of producing and trading.

But optimists believe that Iran's threats to stop its oil shipments may become less important as Saudi Arabia, Iraq and Libya are capable of supplementing oil lost by the Iranians, should they actually impose the export ban threat.

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