Oil Markets Are Jittery Over Iran

NYT

As world leaders and diplomats debate how to deal with Iran's nuclear ambitions, the worry among analysts these days is the fate of the country's oil sector.

The prospect of sanctions against Iran might have been easily shrugged off a few years ago, when the world sat comfortably on millions of barrels of untapped oil capacity. But the picture today is quite different. Iran exports more oil than the world's current spare capacity.

The lurking fear among many oil analysts is a darker version of what happened in Iraq: a diplomatic or military confrontation with a major Middle East oil producer that again leads to disruptions in supplies and provokes a spike in oil prices.

If for any reason exports from Iran, which pumps twice the oil Iraq does, suddenly stopped, other producers would not be able to make up the loss - in contrast to 2003, when Saudi Arabia and Kuwait cranked up output to make up for the drop in Iraqi exports after the American-led invasion.

These concerns are not completely ill-founded. Over the weekend, Iran's president, Mahmoud Ahmadinejad, hinted that his country might be willing to use the "oil weapon" - that is, curbing oil exports - if faced with international sanctions. At the same time, some members of the United States Senate said Iran should be sanctioned regardless of the consequences for oil prices....