Iran, Oil, and the Politics of Sanctions
How could the Iran sanctions affect global oil prices and, consequently, gasoline prices in the United States?
The financial sanctions on Iran officially kicked in last week, and energy economists aren't yet certain about their impact. But what is clear is that oil prices are falling globally from their high in April--in part thanks to increased production from Saudi Arabia. Some lawmakers are starting to talk about imposing a second round of sanctions if Iran continues to resist scrutiny of its nuclear program.
What factors should the Obama administration and other countries consider when imposing sanctions? What other actions, such as tapping into the nation's strategic oil reserves, could the administration take to blunt the possibility of high oil prices? Is the administration doing enough at home to wean the country off foreign oil?
The administration recently exempted certain countries from sanctions because they significantly reduced the volume of crude-oil imports from Iran. Do you see the exemptions as a demonstration of the sanctions' effectiveness? Or do you agree with those lawmakers who have criticized the exemption, in particular to China, as giving a "free pass" to those who help Iran's economy? If these countries can't further reduce their oil purchases from Iran in the next six months, and become subject to U.S. sanctions, how would this strategy impact foreign policy?
July 2, 2012 12:57 PM
FAITH, HOPE & HUBRIS
By Michael Brenner
Professor of International Affairs, University of Pittsburgh
The intricacies of commodity pricing on the international oil market has best be left to those who give the matter constant attention. So I offer only one comment. Based on what we learned from the crises of the 1970s (and 1980s) the characteristic inelasticty of demand in response to price changes, and the inelasticty of supply in response to short term price or demand fluctuations, those inelasticities are most apparent when there are severe changes in supply/demand ratios beyond what we are seeing now.
On to politics. Most important, it should be obvious by now that the Islamic Republic will not surrender or crumble because of the economic sanctions. This is true no matter how many quotes from the man in the Tehran street about economic distress are passed off by the MSM as the final word on the country's political future. This manufactured optimism is classic avoidance behavior - intellectually and in policy terms. We refuse to face up to the reality that we either attack and probably invade Iran or we deal with the leadership realistically on Realpolitik terms that a...
The intricacies of commodity pricing on the international oil market has best be left to those who give the matter constant attention. So I offer only one comment. Based on what we learned from the crises of the 1970s (and 1980s) the characteristic inelasticty of demand in response to price changes, and the inelasticty of supply in response to short term price or demand fluctuations, those inelasticities are most apparent when there are severe changes in supply/demand ratios beyond what we are seeing now.
On to politics. Most important, it should be obvious by now that the Islamic Republic will not surrender or crumble because of the economic sanctions. This is true no matter how many quotes from the man in the Tehran street about economic distress are passed off by the MSM as the final word on the country's political future. This manufactured optimism is classic avoidance behavior - intellectually and in policy terms. We refuse to face up to the reality that we either attack and probably invade Iran or we deal with the leadership realistically on Realpolitik terms that acknowledge their legitimate security interests.
In addition, commentators fail to note that Washington's policies of punishing third parties for trading with Iran are specifically forbidden by the World Trade Organization treaty to which we are a signatory. Sooner or later, we will be hauled before one of their dispute panels and found in violation of our legal obligations. That takes time, though. So I guess the administration's hope is that Iran will bend the knee well beforehand.
In a longer time perspective, most striking is discrepancy between Washington's hubris that it still can dictate to the world what others should or should not do, on the one hand, and our slide down the influence curve, in the other. China, and most others, are acutely aware of this. So rather than challenge us directly now, they will go through the motions of compliance - so long as they have found ways not to do themselves economic damage. Why pick a fight, when we are exhausting ourselves throwing punches non stop in every direction and about to totter from our own vain exertions.
It is long overdo that we discuss these realities maturely. Instead, we're like the character in the roadrunner cartoon who has veered off the cliff but has yet to anticipate the imminent descent as momentum keeps us flapping our wings.
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