Alarmed by the possibility of new Western penalties that could abruptly reduce or even halt its oil exports, Iran issued a warning Monday that crude oil prices could more than double to $250 a barrel if such sanctions were given serious consideration.
The warning, issued by the Foreign Ministry, appeared to be part of an attempt by Iran to intimidate its adversaries as tensions grow. Western nations stepped up their efforts to isolate Iran diplomatically after mobs stormed and vandalized Britain’s diplomatic facilities in Tehran less than a week ago, evoking stark images of the U.S. Embassy takeover after the 1979 Islamic Revolution. The assault was widely criticized, even by some of Iran’s friends.
Despite the warning from Iran, oil prices were little changed by the end of the day.
Leaders in Iran are increasingly concerned that oil sales, Iran’s main source of income, are now at risk in ways that they were able to avoid in earlier rounds of Western sanctions. Those sanctions were imposed to press Iran, so far unsuccessfully, to halt its suspect nuclear program.
Iran is the third-largest exporter of oil, after Saudi Arabia and Russia. Its biggest customers China, the European Union, Japan, India, and South Korea — together account for two-thirds of Iran’s total oil exports, according to an analysis published by the Energy Information Administration in the United States. Reduced orders from just one of those customers could be disruptive for Iran, where the economy is already suffering from the accumulated effects of other sanctions.
After the assault on the British Embassy, European Union ministers said they would give serious consideration to an oil embargo at a meeting in January, and the U.S. Senate voted 100-0 for legislation that would penalize any foreign bank that does business with Iran’s central bank.
The Senate measure, meant to use access to the U.S. market as leverage in isolating Iran, is not yet law, and could be modified. But analysts said that such a measure, if enforced, could wreak havoc on Iran’s oil industry, because the central bank is the main conduit for receipts from oil sales.
“At some point, sanctions become an act of war,” said Vali Nasr, a professor at Tufts University and an expert on Iranian affairs. “If you cut Iran out of the oil market, this is no longer economic pressure.”
The situation has been heating up since the International Atomic Energy Agency, the monitoring arm of the United Nations, issued a report Nov. 8 that said Iran may be actively developing a nuclear weapon and a missile delivery system. Iran, which has always asserted that its nuclear program is strictly for peaceful purposes, denounced the report as a fabrication created under pressure from its Western enemies.
The United States, Canada and their allies in Europe imposed new sanctions on Iran a few weeks after the U.N. report. But those measures were meant to limit Iran’s access to the international financial system and to penalize its petrochemical and oil products industries, not to affect exports of crude oil.