The limits of saber-rattling in oil markets
Hey, remember the last few years, when some Iranian leader would issue a bellicose statement and oil prices would rise by $10? IAh, the good old days of 2006 2007 early 2008. In 2008, tactic doesn’t seem to be working . Consider the following sequence of events. First, there’s the bellicose Iranian rhetoric: Iran warned ...
Hey, remember the last few years, when some Iranian leader would issue a bellicose statement and oil prices would rise by $10? IAh, the good old days of 2006 2007 early 2008. In 2008, tactic doesn't seem to be working . Consider the following sequence of events. First, there's the bellicose Iranian rhetoric: Iran warned Monday that it could easily close a critical Persian Gulf waterway to oil shipments and said that it had a new long-range naval weapon that could sink enemy ships nearly 200 miles away. The warning, by the head of Iran’s Revolutionary Guards, followed the weekend expiration of an informal deadline for Iran to respond to an offer of incentives from six world powers to stop enriching uranium. The United States, which has warships deployed in the Persian Gulf, has said new sanctions should be imposed on Iran for failing to respond to the deadline. On Monday, a State Department official said the six powers — the United States, Russia, China, France, Britain and Germany — had agreed to pursue new sanctions, but it remained unclear what they might be or which nations would take part. In comments carried by the semiofficial Iranian news agency, Fars, Gen. Mohammad Ali Jafari, the head of the Revolutionary Guards, said Iran was capable of imposing “unlimited controls” at the Strait of Hormuz in the Persian Gulf, an important oil route. “Closing the Strait of Hormuz for an unlimited period of time would be very easy,” he was quoted as saying. “The Guards have recently tested a naval weapon which I can say with certainty that the enemy’s ships would not be safe within the range of 300 kilometers,” General Jafari was quoted as saying. “Without any doubt we will send them to the depths of the sea.” General Jafari gave no details about the type of weapon tested, but he said it was Iranian-built and “unique in the world.” Sounds pretty scary, right? In fact, this kind of threat is much more oil-specific than the generic "come and get us" rhetoric that Iranians have been using for a while. Oil markets must have trembled, right? Not so much: Crude oil fell to $118 a barrel on speculation Tropical Storm Edouard will leave U.S. oil rigs and refineries undamaged and as commodities prices tumble because of the slowing U.S. economy. Iran is not mentioned anywhere in the article. This is a good news/bad news kind of story. The good news, as David Victor points out in Newsweek, is that there are hard limits on what oil-producing countries can do to influence energy prices. The bad news is that the reason oil prices have been falling as of late has to do with declining demand. Part of this is a substiution effect -- consumers choosing to spend/save money on different things rather than energy. Part of it is clearly an income effect -- in an economic downturn, people can't afford the energy.
Hey, remember the last few years, when some Iranian leader would issue a bellicose statement and oil prices would rise by $10? IAh, the good old days of 2006 2007 early 2008. In 2008, tactic doesn’t seem to be working . Consider the following sequence of events. First, there’s the bellicose Iranian rhetoric:
Iran warned Monday that it could easily close a critical Persian Gulf waterway to oil shipments and said that it had a new long-range naval weapon that could sink enemy ships nearly 200 miles away. The warning, by the head of Iran’s Revolutionary Guards, followed the weekend expiration of an informal deadline for Iran to respond to an offer of incentives from six world powers to stop enriching uranium.
The United States, which has warships deployed in the Persian Gulf, has said new sanctions should be imposed on Iran for failing to respond to the deadline. On Monday, a State Department official said the six powers — the United States, Russia, China, France, Britain and Germany — had agreed to pursue new sanctions, but it remained unclear what they might be or which nations would take part. In comments carried by the semiofficial Iranian news agency, Fars, Gen. Mohammad Ali Jafari, the head of the Revolutionary Guards, said Iran was capable of imposing “unlimited controls” at the Strait of Hormuz in the Persian Gulf, an important oil route. “Closing the Strait of Hormuz for an unlimited period of time would be very easy,” he was quoted as saying. “The Guards have recently tested a naval weapon which I can say with certainty that the enemy’s ships would not be safe within the range of 300 kilometers,” General Jafari was quoted as saying. “Without any doubt we will send them to the depths of the sea.” General Jafari gave no details about the type of weapon tested, but he said it was Iranian-built and “unique in the world.”
Sounds pretty scary, right? In fact, this kind of threat is much more oil-specific than the generic “come and get us” rhetoric that Iranians have been using for a while. Oil markets must have trembled, right? Not so much:
Crude oil fell to $118 a barrel on speculation Tropical Storm Edouard will leave U.S. oil rigs and refineries undamaged and as commodities prices tumble because of the slowing U.S. economy.
Iran is not mentioned anywhere in the article. This is a good news/bad news kind of story. The good news, as David Victor points out in Newsweek, is that there are hard limits on what oil-producing countries can do to influence energy prices. The bad news is that the reason oil prices have been falling as of late has to do with declining demand. Part of this is a substiution effect — consumers choosing to spend/save money on different things rather than energy. Part of it is clearly an income effect — in an economic downturn, people can’t afford the energy.
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner
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