In November 2011, the International Atomic Energy Agency (IAEA) reported that it had information indicating Iran has carried out tests “relevant to the development of a nuclear explosive device”. In response, the U.S. under the administration of Obama agreed to impose sanctions on financial institutions dealing with Iran's central bank.
The EU governments, in their turn, stepped up the confrontation over the Islamic republic’s nuclear program moving closer to halting oil purchases from Iran, while aiming to announce harsher sanctions on Iran’s energy and banking industries at their next meeting on Jan. 30 after Greece lifted its objections to an oil embargo, however, some EU capitals want a delay they say they need to shield their debt-stricken economies with Britain, France, the Netherlands and Germany wanted a maximum grace period of three months.
As western countries lift the stakes, China announced it will extend its reduction of oil imports from the Persian Gulf country into February, due to a dispute over payment terms. China slashed its imports for December by more than half. So, such an embargo is likely to hurt the Iranian economy.
The Iranian government responded to the new American and European sanctions by test-firing new missiles, announcing the production of its first nuclear-fuel rod and warning an American aircraft carrier not to return to the Persian Gulf.
They also warned last week that the Islamic Republic could easily close the Strait of Hormuz, through which 15% of the world's oil passes, if the new measures are applied.
Such a blockade could drive oil prices up by at least 50% despite Saudi Arabia’s statements to make up for any supply shortfall. It would also lead to global economic uncertainty and regional instability.
Meanwhile, thousands of U.S. troops are headed to Israel to take part in the largest-ever joint drill between the two countries. Following the US-Israeli drill, Iran plans to hold another round of naval exercises in the Strait of Hormuz in February.
The global economy is already on hovering on the edge, with Europe heading towards a recession and the potential expiry of the bush tax in the US that could throw back the world’s biggest economy into recession. The Islamic Republic would like the idea of revenge and hurting its perceived enemies. But, it would hurt itself even more, by halting its oil export revenues. Moreover, Iran would do this at the cost of provoking a military response that would destroy much of its military and targets its nuclear program.
Additionally, Iran holds a parliamentary election in two months, the first since a 2009 presidential election that was welcomed by street protests and chaos, and that was subdued by force. And with the Arab Spring wave still wandering over the region, the current Iranian regime will need to reconsider its bets especially that the impact of a devaluating Iranian Rial (which hovered at 17,200 Rials to the dollar, marking a record low) has already started to upset Iranians.
However, with high stakes at the table Iran could be hesitant to call on the cards, but a shut down of the Straits of Hormuz does not require solely sinking an oil tanker or a naval ship; a credible threat would be enough to shut down oil shipments since tanker insurers would stop their coverage. And given the current situation, the credible threat could be initiated by any “rogue’s” attack that will give a reason for the West to convict Iran and conduct a military attack.
From another part, there is a presidential election in the US, Obama already took many risks during his mandate especially with a lagging economy, and the current administration will not want to jeopardize their current status with another war.
Given all this uncertainty, it seems that both parties do not want to wage a war, however, it seems that the current “war” tone will not diminish very soon; it might even become more severe, which will undisputedly put upwards pressure on oil prices, and if the hesistant threats materialized energy prices will surge with gold prices along.
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