Sunday, December 30, 2012

The Price of War with Iran

From Project Syndicate:

Iran has threatened to seal the Strait of Hormuz – through which 20% of the world’s internationally traded oil passes – if it is attacked. While it would be difficult for Iran to seal the strait for long, if it managed to do so at all, it could easily make passage unsafe with attacks by small boats, sea mines, and missiles launched from coastal mountains.
Furthermore, Iran would likely strike the pipelines in the Arabian Peninsula that would otherwise allow oil to bypass the strait. And several strategically crucial oil-processing facilities are within range of Iranian missiles and special forces, including the Saudi oil-stabilization facility at Abqaiq, which processes seven million barrels daily.
Such a response would immediately cause oil prices to spike – possibly to $200 per barrel in the short run. A protracted conflict could mean sustained prices of roughly $150 per barrel.
Given that Americans consume roughly 18.5 million barrels of oil daily, a mere $8 increase in the price per barrel would sap $1 billion per week from the US economy, jeopardizing its already-fragile recovery. America has already financed two wars on credit, contributing to a significant fiscal deficit. Another war would eliminate what little hope there is of achieving debt stability without drastic – and harmful – spending cuts (or tax increases).
Surging oil prices would also threaten Europe and other major oil-importing countries, including China, India, Japan, and South Korea, thereby lowering or reversing their economic growth. Iran’s own economy, which depends heavily on oil exports, would also suffer.

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