The International Monetary Fund says the nations that would set sanctions against Iran’s oil exports will pay for their convictions with crude prices that could rise as much as 30%. Brent crude would be pushed to more than $140 a barrel. The shock of the increase could knock the global economic recovery, such as it is, off of its axis.
The odds that the increase will happen have increased in the past several days. Iran says it may stop oil exports on its own, instead of waiting for sanctions. The country may be unable to support this move for long. At some point, the government will need the money from oil exports to retain its ability to operate. Iran does still have the support of China. The People’s Republic said that EU sanctions against Iran are not “constructive.” China does not have to worry about Iran’s nuclear weapons work, though. And China can ill afford oil prices that could soar. It is the world’s largest importer of oil after the U.S.
The IMF is full of warnings recently. Taken together, they seem to paint a picture of a new recession, probably deeper than that last one. GDP growth in every major country in the U.S. was cut by the IMF this week. Now, it says oil prices may jump by 30%. One problem builds on the other. Sanctions, the price of which will be hard to bear because of oil prices, could be much worse if the trouble in Europe spreads around the world as well.
The price of the convictions of EU members and the U.S. is about to get much higher. And Iran may put more pressure on these convictions by acting first. That may seem irrational, but the Iranian government is not particularly known for rational actions. If the flow of oil stops, prices rise and Iran’s income drops, the question will become who blinks first. That is, if the IMF’s forecasts come true.
Douglas A. McIntyre