European Union states have agreed in principle to ban all Iranian crude oil imports following Iran’s refusal to drop its nuclear program. Although the country insists its nuclear program is entirely peaceful, the United States and other Western countries believe Iran is using the program to mask its development of nuclear weapons.
Iran supplies a significant share of the EU’s oil, which accounts for 17% of all Iranian oil exports or 450,000 barrels per day. Banning all Iranian crude oil imports into the continent could therefore significantly impact the Iranian economy.
However, S. M. Qamsari, International Director of the National Iranian Oil Co (NIOC) claims that “[Iran] could very easily replace those customers” with some of the displaced volume going to China and other Asian countries, as well as Africa.
But even though the EU’s decision is still in the preliminary stages, an oil embargo could have monumental ramifications for the economic and political stability of the world.
Iran is located along the Strait of Hormuz, a sea passage through which more than 40 percent of the world’s oil is shipped. The country’s recent naval exercises in the area suggest that Iran has been engaging in “mock” exercises on shutting the Straight.
Shutting down the Strait of Hormuz could spark open conflict between Iran and the rest of the world and send oil prices spiralling upwards. The US Navy’s Fifth Fleet, which is based in nearby Bahrain, will defend the shipping route and retaliate militarily if necessary.
However, shutting down the Strait would be a politically unwise move for Iran. Any oil blockade would also harm China, one of its biggest customers for Persian Gulf oil. China has invested heavily in Iranian oil fields and has stated its opposition to an oil embargo on the Gulf country.
But despite the many deterrents Iran faces in shutting down the Strait of Hormuz, a miscalculation from either side could bring tension levels to a boiling point.
Looking at things from a different perspective, the current crisis could give renewable energy a much needed push in 2012. Higher oil prices and continued geopolitical conflict in the Gulf could encourage countries to invest more heavily in renewable power, which would thus decrease their reliance on an increasingly volatile energy source.