Iran Sanctions Could Be a Diplomatic and Political Slam Dunk for Obama
July 3rd, 2012
By: Robert Walther and Aki Peritz
This piece was originally posted on National Journal.
This past March, the 24-hour news cycle was filled by pundits deriding the Obama administration for its handling of gasoline prices. With gas prices down 15% to $3.42 a gallon, those critics have gone silent. Yet, the EU and US sanctions on Iran that were recently put into full effect are leading some to predict a new rise in prices–just as we head into the primetime of the election year. It might make for interesting headlines, but the facts suggest the sanctions are unlikely to have a significant impact on American gas prices.
Global oil production has been rising at a time that the European economy is contracting and the market has weakened remarkably. Prices dropped to under $80 dollars a barrel last week. While news out of Europe of a bailout deal strengthened the oil sector on Friday, the current low prices will serve to cushion any impacts of Iranian oil curtailment. Also, let’s not forget that Iranian crude exports are already down nearly 40% from last year’s levels—yet this reduced output has not reversed the downward trend of world oil prices. What’s more, the six month waivers granted to China and nineteen other nations will provide an outlet for Iranian crude over the short-term, easing any strains on market.
Finally, it’s important to consider the economic and geopolitical force currently being exerted by Iran’s neighbors, Saudi Arabia in particular. Iran relies upon high oil prices to buttress its economy. By increasing production in its own oil wells to keep world prices low, Riyadh is straining Tehran’s economy and undermining its political regime. Saudi Arabia has said its increased output is intended to help avoid price spikes that could stunt the global economic recovery and cause long-term reductions in oil demand. But weakening Iran may also serve personal motives—beyond the usual Sunni-Shia tensions, Iran tried to murder Saudi Arabia’s top diplomat in Washington last year and continues to prop up a Saudi adversary in Damascus. But whatever its reason for doing so, Saudi Arabia’s willingness to increase production creates yet another safeguard against a rise in oil prices due to the Iran sanctions.
Some of the President’s detractors may actually hope that the Iranian sanctions lead to higher gas prices, which could cost him the White House. But, to the benefit of the country, the global economy, and Mr. Obama, the facts suggest otherwise. And if the sanctions are successful in deterring Iran’s nuclear ambitions without causing a significant increase in the cost of gasoline at home, the move could turn out to be a diplomatic and political slam dunk for the President.