For Iran, the use of its own oil as a bargaining chip has limited value. Iran gets 90 percent of its government revenues from oil. Its exports of about 2.5 million b.p.d. amount to 80 percent of its total exports. Oil provides some 40 percent of Iran's gross domestic product.
Yet Iran is the only major producer of oil to suffer from a budget deficit. The Iranian public, notes Alhajji, is heavily dependent on government subsidies for staple goods and fuels. From 1980 to 2005, Iran's population grew by 22.4 million and now stands at 68 million. Its daily oil output during that period rose by only 600,000 barrels.
So a cut in oil exports by Iran would be risky at home. "If they are willing to commit suicide, they could do it," says Alhajji.
The blow to the US would not be so severe. Hurricane Katrina shut off 1.5 million b.p.d. from the Gulf of Mexico, but oil prices rose only $10 a barrel. Any Iranian embargo could be countered by more exports from other OPEC nations and tapping the US Strategic Petroleum Reserve.
Alhajji says an Iranian embargo might raise crude prices initially by $20 a barrel before they fell back toward $60.
The result would be an energy crisis in Iran, which depends substantially on imported gasoline from Europe, but not a worldwide threat, predicts Alhajji.
Last week the American Petroleum Institute said US commercial crude oil reserves in February were the highest since May 1999. That sounds reassuring. But Alhajji notes those record oil reserves would cover only three days of imports.
I would just like to add that commercial crude reserves don't count our Strategic Petroleum Reserve. And we are talking about cutting off Iran's oil exports and not all oil exports, so we'd have far more days of making up for the failure of Iran to sell oil.
But if Iran is foolish enough to stop their oil exports, I bet that would concentrate the European mind like nobody's business.
