Iranian ‘Bluster’ May Overstate Threat to Strait of Hormuz’s Oil Shipping

Iran is unlikely to shut down shipping through the Strait of Hormuz in response to Western sanctions targeting its oil exports, President Barack Obama’s former adviser on Iran said.

Oil rose today for the first time in four days on renewed concern that geopolitical tension in the Middle East may disrupt supply and as higher stock markets raised economic optimism. Crude for February delivery climbed 93 cents, or 0.9 percent, to settle at $102.24 a barrel on the New York Mercantile Exchange. West Texas Intermediate oil traded on the Nymex has surged 20 percent in the past three months.

Tensions increased this week as Iran announced that it has taken another step in its nuclear program and that it had sentenced to death a former U.S. marine of Iranian descent accused of spying.

“Do I really think that they’re going to go ahead and try to shut down the Strait of Hormuz?” Dennis Ross, who served two years on the National Security Council as Obama’s special assistant on Iran, said yesterday in an interview at Bloomberg’s office in Washington. “I do not. They will be the ones who suffer the most from that.”

An Iranian newspaper Jan. 8 cited a senior commander of the Revolutionary Guard Corps, Ali Ashraf Nouri, as saying Iran’s leadership has decided to prevent shipping through the strait if Iran’s “enemies block the export of our oil,” according to the Associated Press.

EU Embargo Plan

European Union talks on an oil embargo on Iran are becoming bogged down over discussions on exemptions for existing supply contracts and the length of a planned phase-in period, according to four diplomats.

Greece, Italy and Spain are trying to soften a U.K. push for a blanket ban, concerned that an oil-supply shock would further damage their economies already hit by the European debt crisis, the diplomats said, declining to be identified because no final agreement has been reached.

Foreign ministers from the 27 EU member states are scheduled to decide at a Jan. 23 meeting in Brussels when to impose and how to phase in the embargo, which is designed to force Iran back to the negotiating table over its nuclear program, the diplomats said. The EU said today it brought forward the meeting from Jan. 30 to avoid a clash with a leaders’ summit that day.

Iranian Politics

Ross, who last month rejoined the Washington Institute for Near East Policy, a research group, said that internal Iranian factors fan its public rhetoric. “A lot of the bluster” reflects internal political jockeying in Iran, he said, noting that Iran would be unable to export its own oil if shipping were impeded.

“I don’t think one can completely discount” the risk because the authorities may not control all the factions, he said. “But I think that they understand the risks that they run and, if you look at their historical behavior, for all their tough talk, they don’t go out of their way unnecessarily to provoke” a U.S military response that could threaten the regime.

The U.S. hasn’t seen any efforts by Iran to close the strait to shipping, George Little, a spokesman for the Pentagon, said yesterday.

Cooling the Rhetoric

“We don’t see any active steps being taken by the Iranians to close the strait,” Little told reporters in Washington. “The rhetoric has gotten a little heavy in recent days and it’s time for it to go lighter.”

The probability of Iran closing the Strait of Hormuz is low, and Saudi Arabia will probably increase crude output to replace supplies from Iran, Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc. (GS), said in London yesterday.

The situation regarding Iran is bearish for the price of crude, Goldman’s Currie said. Europe will turn to Saudi Arabia to replace supplies from Iran, whose exports will go to China, where demand is strong, Currie said at a conference.

Turkiye Halk Bankasi AS told Indian oil refiners that it may no longer be able to be an intermediary for their purchases of Iranian crude, four people with knowledge of the matter said.

Iran has begun enriching uranium to as much as 20 percent U-235 at the underground Fordo site near the city of Qom, the International Atomic Energy Agency said in an announcement that drew immediate U.S. condemnation of Iran. The site is monitored by IAEA inspectors to detect any attempt to enrich uranium to the 90 percent level necessary for a nuclear bomb.

‘Further Escalation’

“This is a further escalation of their ongoing violations with regard to their nuclear obligations,” Victoria Nuland, a spokeswoman for the State Department, said yesterday of Iran.

Iran has said the 20 percent enriched uranium is intended for a research reactor that produces isotopes for medical use. Nuclear physicist David Albright, a former weapons inspector and president of the Institute for Science and International Security, a Washington research group, said Iran already has enough such fuel to serve that purpose for several years.

Stockpiling 20 percent enriched uranium would make it that much easier to get to the next step of 60 percent, and from there to the 90 percent enrichment that is ideal for creating weapons, Albright said.

‘Provocative Act’

U.K. Foreign Secretary William Hague, in an e-mailed statement yesterday, called the 20 percent enrichment “a provocative act which further undermines Iran’s claims that its program is entirely civilian in nature.”

Russia called for the start of “serious talks” on Iran’s nuclear program, urging all parties to avoid “ill-considered and abrupt moves,” according to the statement on the Foreign Ministry website.

In Iran, a court found Amir Mirzaei Hekmati guilty of collaborating “with a hostile country and spying for the Central Intelligence Agency,” Iran’s state-controlled Fars news agency said yesterday.

Hekmati, who was born in Arizona in 1983, joined the U.S. military in 2001 after completing high school, the Associated Press said, citing his family.

Behnaz Hekmati, his mother, said she and her husband, Ali, are “shocked and terrified” over the death sentence, writing to the AP in an e-mail. Ali Hekmati earlier told the AP that his son was visiting his grandmothers in Iran when he was arrested. Hekmati, represented by a court-appointed lawyer, has 20 days to appeal, according to the AP.

To contact the reporter on this story: Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net

To contact the editors responsible for this story: Andrew J. Barden at barden@bloomberg.net; Mark Silva at msilva34@bloomberg.net

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