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Friday, May 29, 2009

Over a Barrel

I don't think the U.S. needs to conduct a naval blockade of Iran, but the four recommendations made to set the stage for an effective blockade made by Morse and Mokovsky seem to be on target. Why don't we just execute these four recommendations without the blockade? I think it is odd that a naval blockade is even being talked about; the only way I see the Obama administration giving the order for one is if Ted Kennedy told him on his death bed that it would make for easier comparisions between Obama and JFK in the history books.
If the United States is committed to using an energy lever, the only effective one available is to deploy a naval blockade to interdict Iran's gasoline imports, and possibly its oil exports. Since this would be tantamount to an act of war, it should only be initiated by the United States and its allies after diplomacy and financial sanctions have failed, as a last measure short of a military strike on Iranian nuclear facilities.

Iran might well react to a blockade or a military strike by sabotaging the oil sector in southern Iraq, jeopardizing 1.8 million barrels/day of oil exports for possibly several months. If Iranian oil exports were also halted, by the Iranians or us, it could mean the loss of close to 4 million barrels/day, or close to today's global spare production capacity. Iran could also attack other Gulf energy facilities or attempt to close the Strait of Hormuz, through which about 20 percent of the world's oil exports pass.

If the U.S. is contemplating a blockade or military strike, then it must prepare to mitigate any spike in energy prices that might result from a conflict. Several measures are called for, some of which can be accomplished in the near-term while others will require longer lead times.

First, the U.S. Department of Energy needs to test different release rates of its Strategic Petroleum Reserve (SPR), which stores about 700 million barrels of crude oil as a strategic cushion. The SPR has never been fully tested and might only be capable of supplying half its declared amount of 4.4 million barrels/day for up to 90 days.

Second, the U.S. might ask the Saudis to commit to ramping up oil production if U.S. differences with Iran intensify.

Third, the U.S. must work to minimize Iran's ability to reprise against its neighbors. We should work closely with Iraq to boost security of the southern Iraqi energy export facilities, by making it a priority and by employing infrastructure security experts and forces. We should work with other regional energy exports to augment the security of their energy as well.

Fourth, we should explore other means to export Persian Gulf oil by circumventing the Strait of Hormuz. For instance, we should press the Saudis and Iraqis to rejuvenate the old Iraq-Saudi pipeline to the Red Sea, which may eventually require some joint ownership of the line as well as rebuilding it on Iraqi territory. The United States should also work with Iraq and Turkey to refurbish and expand Iraq's two pipelines through Turkey.

As a presidential candidate, Obama declared Iran's nuclear development "unacceptable," and as president he pledged "to use all elements of American power to prevent Iran from developing a nuclear weapon." Toward this end, energy can offer some important levers, but the United States must be realistic about their impact and diligent in preparing for their use.

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