Sanctions on Iran's oil may cost India dearly

In his article in Deccan Herald, Prasenjit Chowdhury says successive US governments have, since the 1973 Arab oil embargo, equated national security with control over oil. The following is the text of his article in Deccan Herald in full. American president Barack Obama recently advocated to the world to 'forge ahead' with tough sanctions on Iran, saying there was enough oil in the world market - including emergency stockpiles - to allow countries to cut Iranian imports. In support of his case, Obama said increased production by some countries as well as 'the existence of strategic reserves' helped him come to the conclusion that sanctions can advance. 'I will closely monitor this situation to assure that the market can continue to accommodate a reduction in purchases of petroleum and petroleum products from Iran,' he said. Obama's statement must stand to critical scrutiny. From India's standpoint, some argue that India must toe the American line to alienate Iran. They cite that the total Indo-Iranian trade is around $14 billion, which is 'heavily loaded' in favor of Iran, which sells us oil worth around $10 billion. India's trade with the US is $50 billion, with the EU over $100 billion, with Saudi Arabia around $26 billion. They maintain that the oil India buys from Iran can always be sourced from other places. Iran has been exporting about 2.5 million barrels of crude oil per day (bpd), with 65 per cent going to Asia and 30 per cent to Europe. It is the second largest oil producer after Saudi Arabia in the Organization of Petroleum Exporting Countries (OPEC). India and China, which together buy 34 per cent of Iran's oil, appear unwilling to give in to western pressure, contending that the US and EU sanctions go beyond measures approved by the United Nations Security Council and will be counterproductive. Now Obama's ratings are perfectly in tune with successive US administrations, which since the 1973 Arab oil embargo, have equated national security with access to, and control of, oil - particularly in the Persian Gulf, which holds two-thirds of global oil reserves. In other words, as long as the US needs oil, it needs the Persian Gulf. Faced with this unpleasant fact, every president since Carter has chosen to defend US 'access' to the Persian Gulf. Supporting the removal of Saddam Hussein, in August 2002, Dick Cheney told the Veterans of Foreign Wars why he had to be removed: "Armed with an arsenal of these weapons of terror and a seat at a top ten percent (sic) of the world's oil reserves, Saddam Hussein could then be expected to seek domination of the entire Middle East, take control of a great portion of the world's energy supplies…" Therefore, America needs a pliant oil-exporting nation and tries to bludgeon an intransigent nation (like Iraq or Iran) into submission either by military intervention or by crippling sanctions. Iran is already threatening that in case it feels sufficiently bullied by the western nations, it would shut down the Strait of Hormuz, a waterway that is critical to the world economy and known to be the most important chokepoint in the world. The Strait of Hormuz connects the Persian Gulf to the Arabian Sea and happens to be the only passage to the open ocean for some of the biggest oil producers in West Asia. About 20 per cent of the world's oil passes through the Strait of Hormuz, including crude oil produced in Saudi Arabia, Iran, and Kuwait. Should Iran really block the waterway, the world oil prices would soar and almost all of which is part of the manufacturing or shipping process is going to be dearer. But Obama's smug belief that Iran can be bypassed because of 'the existence of strategic reserves' has been questioned by many, notably by Dr Collin Campbell, a Cambridge-educated retired senor geologist who had spent the better part of his life exploring the world for new reserves, who in 2002 first helped convene a loosely connected organization called the Association for Study of Peak Oil to take an objective look at the world oil supplies. The organization pooled in the experience of lifetimes in the field, of men who explored the world for Shell, BP, Total, and all the other big majors to build a massive database that tracked the depletion of every major producing oil field in the world. The American geophysicist M King Hubbert in his 1956 address to the American Petroleum Institute first made the case that oil production in the US would peak in the early 1970s and decline thereafter, a prediction that certainly did not endear him to those who, like Obama, refuse to hear of oil depletion. He cannot simply lull the world into a misplaced sense of optimism about the future directions of oil prices in view of the inexorable fact that oil production is nearing a plateau while oil consumption is on the rise. Though the vast treasure chest of oil and gas reserves that lay trapped under the floor of the Gulf of Mexico was touted as the new frontier of American oil supply, hurricanes routinely batter the region affecting roughly a quarter of US oil production there and threatening 40 per cent of US refinery capacity. It is no longer a secret that with damage from hurricanes in 2008 production in the Gulf of Mexico, US oil production is heading backwards. So India must count the eggs before they are hatched. Iran is the second largest OPEC producer and the world's third largest oil exporter, accounting for almost four per cent of global oil output and almost six per cent of total world oil exports. India and China receive 1.2 million who are the top two recipients of Iran's oil. As Obama is required by law to determine every six months whether the price and supply of non-Iranian oil are sufficient to allow consumers to 'significantly' cut their purchases from Iran, it is important for India to know, in view of Iran's oil production and export shutdown and a global recession of oil supply, what 'strategic oil reserves' are shut open for it.