Iran’s oil revenues have risen sharply in 2011 and will reach an all-time high of more than $100 billion for the year, according to estimates by IHS Cambridge Energy Research Associates (IHS CERA). The revenue increase—nearly a third higher than 2010—has been the result of high oil prices driven upward in part by increased tensions related to Iran’s defiant pursuit of nuclear technology.
“Relations
between Iran and the West have gone from bad to worse this autumn at a time
when spare capacity in global oil production is relatively tight,” said Bhushan
Bahree, IHS CERA senior director for global oil. “As a result, markets could
increasingly factor in the risk of conflict and supply disruption in the price
of oil.”
The
recent escalation of tensions—the alleged Iranian plot to assassinate the Saudi
Arabian ambassador to the United States on U.S. soil and the expulsion of
Iranian diplomats from Great Britain following the ransacking of Great
Britain’s embassy in Tehran—have lead to wider European sanctions.
Current
sanctions have caused Iran serious economic pain. But absent seriously implemented
international sanctions Iran will be able to divert oil shipments to other
buyers such as China, India and Japan, Bahree says.
“The West faces a classic catch-22 in regards to Iranian sanctions,” says Bahree. “Any sanctions that the West imposes will ratchet up tensions, which raises fears of a conflict and puts more upward pressure on oil prices. Unless Iran is forced to offer discounts to sell its oil, the result is a higher profit for Iran when it inevitably sells the oil to someone else. Thus, any new plans need to be carefully crafted.”
“Of course, economic sanctions could also expose and deepen fault lines in Iran’s leadership,” Bahree says. “Conversely, the perception of an outside threat could unite Iranians behind their existing leadership.”
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