January 2nd, 2012
02:57 PM GMT
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Abu Dhabi (CNN) – Iran is using what is normally a quiet holiday lull in the West to make the most of its military manoeuvres in the Strait of Hormuz, which have concluded after 10 days. The navy test-fired two types of long-range missiles, following the launch of medium-range devices on New Year’s Day.

From afar, it would appear that Iran is throwing its trump cards on the table very early in this standoff with the United States, the European Union and the six members of the Gulf Cooperation Council (Saudi Arabia, Bahrain, Kuwait, the United Arab Emirates, Oman and Qatar).

But analysts say the Iranian government sees it differently. The latest round of sanctions from Washington – built into the U.S. defense bill – among other things targets Iran’s central bank. This is similar to the strategy used by the European Union with its sanctions against Syria. If action is taken to cut off the arteries of a country’s financial system, then it becomes very difficult for it to trade any of its assets – most importantly oil in Iran’s case.

This explains the sudden plunge in Iran’s currency, the rial, to a record low after U.S. President Barrack Obama signed the legislation. The spread between the official central bank rate of 11,179 rials against the dollar and the public exchange rate widened by nearly 5,000 rials, according to IRNA, the Iranian state news agency. A sustained plunge in the currency could drive up the cost of imported goods and spark inflation.

Mehdi Varzi, a veteran energy strategist and now president of the consultancy Varzi Energy, says Iran is feeling boxed in and is therefore lashing out with military manoeuvres and the test-firing of missiles.  “Iran is trying to react to something that is being threatened by the West,” says Varzi. “It is a very real and dangerous threat to the country.”

Military manoeuvres, strategists suggest, are a warning not only to the U.S. and Europe but to the GCC. In its final communique at their summit last month, the six members of the GCC called on Iran to stop meddling in internal affairs and attempts to "instigate sectarian strife."  Saudi Arabia’s $30 billion military order, approved by Washington after that GCC communiqué, also seemed to raise tensions before Iran’s military exercises started.

Iran, according to Facts Global Energy, earned $73 billion from oil exports in 2011 on exports of 2.2 million barrels a day. The oil sanctions being considered by the EU would cut off less than a quarter of that total, or about 450-500 thousand barrels a day. Major Asian customers, strategists say, would carry on importing – notably China, South Korea and Japan. With little spare oil capacity in the world, those countries cannot at this juncture live without Iranian crude. FGE estimates that sanctions could reduce Iran’s exports by 10-15 percent with an annual cost of about $15 billion to Iran.

For its part, Iran’s oil minister Rostam Qassemi suggests that oil sanctions against its exports could double prices from today’s levels of about $107 for the benchmark North Sea Brent Crude.

Energy strategist Varzi says there is already a premium built into today’s price - but that premium is for a threat, not military confrontation in and around the Strait of Hormuz, through which passes one-fifth of daily global oil exports.

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soundoff (20 Responses)
  1. Steve Thompson

    Here is an article that outlines how massive Iran's oil reserves are and how China is stepping in with massive capital investments to replace nations that are under pressure to sanction Iran's current regime:


    Should hostilities erupt, it will be interesting to see which side China ends up taking, especially considering their multi-billion investment in Iran's oil and natural gas industries.

    January 2, 2012 at 3:18 pm |
  2. FatSean

    This is a distraction while Iran works with the democratically elected government of Iraq on a longer term plan. You guys miss Saddam yet? LOL! Stupid yanks invading Iraq...

    January 2, 2012 at 3:51 pm |
  3. RS

    And we all know those ignorant people who think "Sanctions don't do anything." No wonder Iran is retaliating. If you were the leader of that country you would be outraged and feel "cornered" too.

    January 2, 2012 at 4:29 pm |
  4. K.Mian

    Iranian cowards are not aware of fury Americans are capable of:
    Most valiant action fought by the American army
    29 December 1890

    Twenty-three soldiers from the Seventh Calvary were later awarded the Congressional Medal of Honor for the slaughter of defenseless Indians, women and children at Wounded Knee.
    Many of the injured died of exposure in the freezing weather, and several days after the incident the dead were strewn as far as approximately two to five miles away from the original site. By mid-afternoon on December 29, 1890 the indiscriminate slaughter ceased. Nearly three-hundred men (including Chief Big Foot), women, and children - old and young - were dead on the frosty banks of Wounded Knee Creek. Twenty-nine soldiers also died in the melee, but it is believed that most of the military causalities were a result of "friendly" crossfire that occurred during the killing frenzy.
    There was a woman with an infant in her arms who was killed as she almost touched the flag of truce...A mother was shot down with her infant; the child not knowing that its mother was dead was still nursing...The women as they were fleeing with their babies were killed together, shot right through...and after most all of them had been killed a cry was made that all those who were not killed or wounded should come forth and they would be safe. Little boys...came out of their places of refuge, and as soon as they came in sight a number of soldiers surrounded them and butchered them there."

    (Source: 500 Nations, 1994)

    While only 150 bodies were interred in the mass grave, Lakotas estimate that twice as many Indians perished that brutal morning in 1890 - on a reservation supposedly protected by two treaties.

    January 2, 2012 at 4:55 pm |
  5. vkmo

    Whenever there's a conflict in the Mideast, oil prices rise and world economies suffer. Conflicts help the producer nations (mostly in the Mideast) and hurt consumer nations. Oil price has risen from about $3 per barrel to over $100 per barrel in 50 years.

    Canada is self sufficient in oil and a large producer. US can also produce more of the oil it needs, and should relax some of its drilling restraints due to the dire current economy. The Canada to Texas pipeline won't hurt the environment more than a typical highway, and should be built. Instead, if Canada has to build pipelines to the Oceans to put oil onto tankers that would hurt the environment in the same way. And also when it gets to the oceans on oil tankers there are other potential buyers across the oceans who will be bidding for this oil.

    The way the current regime in Iran treats US, Europe and other non-Islamic nations is similar to the ruthless way it has treated its own native Zoroastrian religion people. Shah of Iran was more tolerant of the Zoroastrians, his neighbors and the Western world. See:
    http://en.wikipedia.org/wiki/Persecution_of_Zoroastrians ......'The 1979 Islamic Revolution was equally traumatic for the remaining Zoroastrians, and their numbers reduced drastically. Immediately after the revolution, during Bazargan's premiership, Muslim revolutionaries "walked into the main Zoroastrian fire temple in Tehran and removed the portrait of the Prophet Zoroaster and replaced it with one of Khomeini."... etc'

    January 2, 2012 at 5:39 pm |
  6. Elias77777

    I just don't buy this story, Iran has neighbours who are willing to do business with no matter how many sanctions the UN,US.EU will impose. UAE is doing business with Iran about $3.7 billions, Iraq is doing the same.
    Non of these countries will stop trading with Iran. Let's not forget Iran has been in US trade sanction for long time, but we can still see US products sold in Tehran shops. Guess who supplying them??? DUBAI Government.

    January 2, 2012 at 5:49 pm |
  7. John

    China has benefited from all the wars the US has waged in the recent past after the 9/11. It would probably have been easier to keep Saddam Hussien cornered and of a less of a threat than keeping Iran cornered. And Saddam would have kept Iran from becoming a military might. With China's interests in Iran there is very little the US could do militarily to halt Iran's nuclear ambitions.

    January 2, 2012 at 5:53 pm |
  8. Brazil123

    USA will spend all its money with wars again. Iran has a nuclear weapon, and the country also have intercontinental missels. This situation will lead the world to a oil crisis again, unless smart countries start to invest in green technology.

    January 2, 2012 at 7:15 pm |
  9. Minority Supporter

    Who is the threat to world peace,Iran or US Govt? US has clearly proven itself to be an enemy of progress. All the US deeds is based on hate,jealousy and inherited demonic evil.Taste of innocent blood.Its time the world wake up to this humanity threat of survival.US need to be stopped. US is not the only threat to world peace but also to human survival.

    January 2, 2012 at 8:44 pm |
  10. Jason

    So policing the world and having tens of thousands of nukes makes you feel warm and fuzzy..

    $800+ billion spent in Iraq
    4,500 American lives
    100,000+ American casualties
    30,000 Iraqi lives
    300,000 Iraqi casualties
    350 Journalists killed
    450 Academics killed
    1 military-related suicide every 36 hours
    20+ Veteran suicides per day

    Our recent withdrawl from Iraq has revealed PTSD of epidemic proportions. Suicide rates will only go up. They need our help NOW. Our friends and family didn't volunteer for these illegal wars. Ron Paul has more donations from military personnel than all the other candidates do combined. If this isn't a cry for help, I don't know what is.

    Next up:

    January 3, 2012 at 3:24 pm |
  11. Dino

    Shouldn't there be more comments in this?

    January 3, 2012 at 9:08 pm |
  12. Jake

    I am pro-war considering this country spends 7x more on there military budget then the next guy on the list, but when we are raising our debt ceiling, fighting an endless war in Afghanistan, pulling out of Iraq before the job is finished.. How can I support this?

    CNN did an estimate on the cost of Regime Change and Bombing Raids in Iran based upon Iraq and Afghanistan:
    *Bombing Raids ~10 Billion
    *Regime Change ~1 Trillion

    To topple the Iranian Regime is the simple part, but when a few terrorists groups from neighboring countries get involved and think they want a seat in the new Iranian government, We've got ourselves in another Iraq...

    Other countries say they do not have the resources to sustain a lead role in a war such as Afghanistan or Iraq, out of NATO, only the United Kingdom puts forth a legitimate force to help in Iraq and Afghanistan, but I believe that if they felt a large enough threat, they would change their decisions. It seems Iran is far off from ever hitting us with a ballistic missile with a nuke on the end of it, seems leaders are more concerned about a terrorist bringing it into America. If thats the threat.. I could imagine that it would be a lot cheaper putting radiation detectors at all seaports, airports, borders.. Etc.. Besides, this will help us defend against our other enemies in the world as well.

    Alll in all.. if we weren't 14 or 15 trillion in debt, I would say, bomb them back to the stone age.This isn't worth the risk of spending a trillion right now though...

    January 3, 2012 at 10:19 pm |
  13. Jake

    @Minority Supporter-
    Sorry you've been misinformed all of your life to believe that... Its a shame that propaganda in countries such as yours have become so anti-American or Anti-Western on that note, because half the world stands by us on our war.. forty-some countries have joined us in Iraq and Afghanistan. The simple fact is: the leader takes the scrutiny. We lead 2 wars in the last 10 years, we are #1 economy, we are wealthiest country, and based on a foreign non-bias estimates of our military, we beat the next guy on the list(which is China) by a mile..

    January 3, 2012 at 10:36 pm |
  14. concerned australian

    The US needs to butt out of other countries and run their own properly. Unfortunately our politicians follow them. so vote Ron Paul and the whole world will have a better future! The Media are so controlled, bring on the revolutianarys and the visionaries. Go Ron Paul!!

    January 4, 2012 at 12:34 am |
  15. Marvin

    The US needs to stop their oil wars. The bully is soon hated by all. It is quickly turning into Adolf Hitler's Germany.

    January 4, 2012 at 3:18 am |
  16. Happy news

    Come and Check. Good News!!

    January 4, 2012 at 2:10 pm |
  17. manitoba6

    Iran exports so much oil through the straight, that if they actually shut it down they would hurt their own exports to a far greater extent than any sanctions could. Also, they would really tick off China who is their largest customer.

    Sanctions would hurt Iran's revenue by more than 10-15%. That is accounting only for the direct loss of oil revenues at today's prices. But since they would lose customers, the price of Iranian oil would go down for their other customers, so in fact the economic hit would be greater than the percentage of business lost. In fact, China has recently been squabbling with them to lower the rates they are paying.

    January 8, 2012 at 5:19 pm |
  18. sinbad

    This is all about money. Iran trades in currencies other than the US dollar. The US thinks this might start a run on the dollar.

    January 11, 2012 at 4:14 am |
  19. Al Davis

    This article is nice, and it makes sense, except it doesn't really touch on the main point: which is that the Iranian regime is psychotic. They don't think like you and I. They're probably not as concerned about economics as they are with their glorious, invincible, beloved military. The main things they care about are rattling their sabers, building nuclear weapons, financing terrorist organizations, and wiping Israel off the map. Don't given them too much credit!

    January 11, 2012 at 8:42 pm |
  20. fred

    @ Marvin

    Really? So we have concentration camps gasing and burning people to their deaths by the millions now in the US? I must have missed those last time I was out driving around!

    Get a grip!

    January 31, 2012 at 7:51 pm |

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