COMMENTARY | Oil prices have risen to as much as $110 a barrel as the European Union agreed on an embargo to Iranian oil imports. Much has been written of what new sanctions -- which are seen as the strongest signals by the West against Iran's nuclear program -- will mean for Iran. But the big question is -- can the world do without Iranian oil?
According to the EIA, "Iran is OPEC's second-largest oil producer and the third-largest crude oil exporter in the world. " Crippling Iran via oil sanctions may require more than European embargoes, especially since China is the largest consumer of Iranian oil, as Al Jazeera reports. While the BRICS do not encourage Iran's nuclear ambitions, their domestic growths are heavily dependent on a secure supply of oil, making them unlikely participants in further sanctions imposed on Iran.
Reuters reported that India was looking at "alternative" methods to pay for Iranian oil noting that it (India) abides only by UN sanctions and not sanctions imposed by "groups of countries." According to the Times of India, Israeli intelligence websites claim that India will pay for oil with gold, a claim that Indian authorities have neither denied nor confirmed. As the fourth largest importer of Iranian oil, India's reaction is far from hostile to Iranian oil producers.
China has reduced its imports of Iranian oil but has not embargoed it. Indeed it will not, as the world's largest consumer of energy it cannot afford to. It is widely believed that China will cover the gap in demand once the EU embargo sets it. While Saudi Arabia has promised to cover the short fall should Iran stop supply -- the Kingdom's assurance has not stemmed geopolitical tensions heightened by Iran's claim that it will block the Strait of Hormuz through which a sixth of global oil production is shipped.
Though Iran's nuclear program does not have support from the global community, the current 'carrots and sticks' method of negotiation is not working. If anything, it is providing greater incentive to continue and accelerate the nuclear program equating it with Persian pride and national security. On an economic level the uncertainty in the oil markets and war rhetoric is causing the price of oil to escalate -- something that will severely hamper the fragile global economic recovery.
The solution to the nuclear program is on the negotiation table and the path to the table isn't via sanctions and the threat of war. If this continues, one might soon see a situation where "macho sense" takes over "common sense."
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