Iran: Oh, No, Not Again

In each of the years 2008, 2009 and 2010, significant worries emerged that Western nations might attack Iran. Here in 2012, similar concerns are once again at the surface.

Why revisit this topic again? Simply because if actions against Iran trigger a shutdown of the Strait of Hormuz, through which 40% of the world’s daily seaborne oil passes, oil prices will spike, the world’s teetering economy will slump and the arrival of the next financial emergency will be hastened. Even if the strait remains open but Iran is blocked from being an oil exporter for a period of time, it bears mentioning that Iran is the third-largest exporter of oil in the world after Saudi Arabia and Russia.

Once again, I am deeply confused as to the timing of the perception of an Iranian threat, right now at this critical moment of economic weakness. The very last thing the world economies need is a vastly increased price for oil, which is precisely what a war with Iran would deliver.

Let me back up. The U.S. has already committed acts of war against Iran, though no formal declaration of war has yet been made. At least if Iran had violated U.S. airspace with stealth drones — and then signed into law the equivalent of the recent U.S. bill that will freeze any and all financial institutions that deal with Iran out of U.S. financial markets — we could be quite confident that these would be perceived as acts of war against the U.S. by Iran.

And rightly so. From Reuters:

“U.S. Imposes Sanctions on Banks Dealing With Iran

“Dec. 31, 2011

“(Reuters) – President Barack Obama signed into law on Saturday a defense funding bill that imposes sanctions on financial institutions dealing with Iran’s central bank, while allowing for exemptions to avoid upsetting energy markets.

“The sanctions target both private and government-controlled banks — including central banks – and would take hold after a two-six-month warning period, depending on the transactions, a senior Obama administration official said.

Sanctioned institutions would be frozen out of U.S. financial markets.”

The impact of this law was quite pronounced and immediate, with the Iranian rial falling sharply against the dollar in the first few days after the bill was signed into law. As reported in Reuters:

“Iran’s Rial Falls to Record Low on U.S. Sanctions

“Jan. 3, 2012

“(Reuters) - The Iranian rial fell to a record low against the dollar on Tuesday following U.S. President Barack Obama signing a bill on imposing fresh sanctions against the country’s central bank.

“The new U.S. sanctions, if fully implemented, could hamper the world’s major oil producer’s ability to sell oil on international markets.

“The exchange rate hovered at 17,200 rials to the dollar, marking a record low. The currency was trading at about 10,500 rials to the U.S. dollar last month. Some exchange offices in Tehran, when contacted by Reuters, said there was no trading taking place until further notice.

“‘The rate is changing every second…we are not taking in any rials to change to dollar or any other foreign currency,’ said Hamid Bakhshi in central Tehran.” (more)