The United States is considering the option of drawing on its strategic oil reserves to bring down oil prices as supply disruption from Iran has led to a steep price rise, US Treasury Secretary Timothy Geithner acknowledged in a statement.
“There is a case for the use of the reserve in some circumstances and we will continue to look at those and evaluate that carefully,” said Timothy Geithner on CNBC network on Friday.
According to an International Monetary Fund (IMF) official, a halt of Iran’s oil exports to the Organisation for Economic Cooperation and Development (OECD) countries could trigger a 20% to 30% jump in oil prices.
Over the last few years, the United States has criticised Iran for supporting militant groups around the regions such as Hamas and Hezbollah and condemned the clampdown on Green Movement. However, the onus of the tensions centre on Iran’s nuclear programme, which American and European officials insist is to develop weapons of mass destruction.
Iran’s leadership contends that the goal is to generate electricity while saving its oil reserves that helps the country earn valuable foreign exchange. According to the US Energy Department and the International Monetary Fund, oil is Iran’s main source of income, earning the country $100 billion in 2011 and supplying more than 50% of the national budget. According to OPEC, Iran is the second-largest producer after Saudi Arabia, and its oil output in February was steady at around 3.5 million barrels per day, the same as in January 2012.
The United States and the European Union are taking significant steps to cut off Iran from the rest of the world by announcing coordinated sanctions against its central and commercial banks. In addition, the United States imposed sanctions against companies involved in Iran’s nuclear industry, as well as on Iran’s oil buyers. They also took measures to weaken the Iranian government by depriving it to sell gasoline or invest in petroleum industry. Several countries were forced to cut back on purchases from the world’s fifth-largest exporter of crude and OPEC’s second largest, pushing up the commodity price.
The deputy head of Iran’s armed forces stated that Iran would take pre-emptive action against its enemies if it felt its national interests were endangered. “Our strategy now is that if we feel our enemies want to endanger Iran’s national interests, and want to decide to do that, we will act without waiting for their actions,” Mohammad Hejazi told semi-official Fars news agency.
The Iran government has threatened to block the Strait of Hormuz, an important oil transit point, in retaliation for the sanctions. The government also ordered a halt of oil exports to Britain and France, though both the countries depend little on oil from Iran.
Earlier this month, Iran’s Oil Minister Rostam Qasemi hinted at the possibility of Iran’s halting oil exports to certain European countries that supported the US economic embargo on the Islamic Republic.
EU foreign ministers agreed to ban oil imports from Iran on 23 January and to freeze the assets of the Iranian Central Bank across the EU in a bid to exert further pressure on Iran over its civilian nuclear programme.
Angel Gurria, secretary general of the OECD, said releasing reserves now would not help dampen any price rise. “These prices are due to a great extent … because there is a lot of tension, these discussions every day over the Straits of Hormuz and Israel,” he said in an interview.
Sources:Reuters, marketwatch.com, nytimes.com