June 8, 2006 | Commentary on National Security and Defense

The Oil Weapon

As Iran mulls a fresh offer of U.S. and European Union incentives to halt its nuclearweapons program, the regime's top leader, Ayatollah Ali Khamenei, this week brandished the oil state's most powerful weapon - disrupting Middle East energy supplies.

In a speech marking the anniversary of the death of Ayatollah Ruhollah Khomeini, the regime's founder, Khamenei said: "If the Americans make a wrong move toward Iran, the shipment of energy will definitely face danger - and the Americans would not be able to protect the energy supply in the region."

This isn't the first time Iran has wagged its fundamentalist finger at the world, making these - or more vicious - threats. In fact, President Mahmoud Ahmadinejad has arguably raised menacing remarks to an art form.

But with oil at $70-plus a barrel, energy markets increasingly skittish and patience with Iran wearing thin, it's worth giving this threat another look.

On the "oil weapon," Iran has two choices: It can a) simply restrict its own energy production; or, b) attack nearby foreign energy production or oil tankers/natural gas carriers.

And it could pull either one off - but only at a significant price.

Withholding production would let Iran, the world's fourth-largest oil exporter, put a sizeable (if temporary) dent in the U.S. and world economies.

But Tehran's actions would come at a steep cost. Iran's economy relies heavily on energy. According to the Energy Information Agency, oil generates 80 percent to 90 percent of Iran's total export earnings, and 40 percent to 50 percent of the total government budget.

And, despite big oil profits, the Iranian economy is still troubled, suffering inflation of 15 percent or more, similar unemployment and chronic budget deficits due to government handouts/subsidies such as food and gas (costing 40 cents a gallon!).

In 1979, Iran had the most advanced economy in the Middle East; today, it's a mess. And the Washington Times reported this week that concerns over the nuclear crisis have already led $200 billion in capital to flee Iran recently. That's gotta hurt - and any escalation of tensions can only make the problem worse.

Plus, a boycott would quickly lose the support of Iran's energy-starved backers, like China.

Bottom line: Iran cutting off its own oil/gas exports would be akin to cutting one's nose off to spite one's face.

The other plausible Iranian option is to attack neighbors' energy assets - e.g., strike oil/gas production facilities in Saudi Arabia, Kuwait, the United Arab Emirates - or Iraq.

The regime might launch Shahab-class ballistic missiles to strike energy infrastructure just across the Gulf in mega-producer Saudi Arabia, or send xplosive-laden suicide boats against Gulf oil/gas ports and facilities.

Tehran could also attack non-Iranian flagged shipping. Or, better yet, close the Strait of Hormuz - the 40-mile wide bottleneck linking the Arabian Sea and Persian Gulf, through which passes 40 percent of the world's oil - using mines, subs, patrol boats or even antiship cruise missiles.

Even limited attacks on the region's energy resources would skyrocket oil to $100 a barrel or more in a New York minute. Worse, it would send "crisis diplomacy" - which rarely achieves good outcomes - into overdrive.

But this ploy is also fraught with problems. Sure, Iran has the military capability to attack unarmed shipping, maybe, even (temporarily) close the Strait of Hormuz by scuttling a ship - but such actions wouldn't go unopposed.

Enter the U.S. Navy. While America's brave soldiers, Marines and airmen are fighting the good fight in Iraq and Afghanistan, U.S. naval forces in the Middle East stand ready on a moment's notice to deal with any Iranian aggression.

Yes, Iran could - temporarily - wreak havoc in the Persian Gulf, using sea-skimming, near supersonic Chinese C-801/802 anti-ship cruise missiles (and older Silkworm missiles), quiet Russian Kilo diesel and mini-submarines, stealthy mines and lethal, high-speed patrol boat "swarm" tactics. But U.S. naval power - surface, subsurface and air - would make fast work of Iran's misguided military efforts.

The Navy could also guard shipping, as it did in the infamous "Tanker War": During the 1980s Iran-Iraq War, U.S. warships escorted oil tankers in the gulf to deter attack by Tehran or Baghdad.

Playing the oil card puts Tehran in a risky, high-stakes game. Sure, it could commit economic hara kiri by cutting its oil/gas production. Or alienate the entire world by attacking regional oil/ gas facilities and/or shipping. But Iran's leaders should understand that either course would be tantamount to being hoist by their own petard.

Sadly, you can never discount the possibility of unfathomable miscalculation.

Peter Brookes, a senior fellow at The Heritage Foundation, is the author of "A Devil's Triangle: Terrorism, WMD and Rogue States."

About the Author

Peter Brookes Senior Fellow, National Security Affairs
Douglas and Sarah Allison Center for Foreign and National Security Policy

First appeared in the New York Post