Matthew Hulbert is an analyst at the Netherlands Institute for International Relations (Clingendael) who I’ve followed since he was at ETH in Zurich. Here Hulbert argues that if the U.S. were serious about hurting Iran they’d pressure India and China to stop buying Iranian oil and even lean on the Saudis to cut them off. None of that will happen, he says, because the blowback effects on the U.S. economy would be devastating and disruptive to the upcoming elections.  Netherlands Institute for International Relations (Clingendael)  Americans are odd when it comes to petrol. They seem to think it should never, in any circumstance, cost them more than $4 a gallon. This creates major complications for US foreign policy, precisely because cheap oil doesn’t always lend itself to easy decisions in foreign affairs. US sanctions over Iran provide the latest and most telling example.  No sooner had the US unveiled tough new sanctions on Tehran than oil prices started to rise. America turned the screw on South Korea and Japan to comply wherever possible. Turkey got the guilt treatment, while Washington leant heavily on a debtridden EU to come up with its own embargo. Asian heavyweights (China and India) got a stern warning to reduce Iranian imports to boot, presumably to forge international economic consensus against Tehran.  Given WTI (the US benchmark) was trading well below Brent (the European benchmark) Washington had no problem in applying such diplomatic pressure. But things have now changed in the US psyche, and done so for a very obvious reason: American crude prices have risen to sufficiently high levels ($110/b), that they have translated into $4 a gallon at US pumps. The second this iconic ‘$4’ number was hit, political pandemonium set in across Washington. The stakes could not now be any higher for President Obama.  The Democrats face a stark electoral choice. Do they continue to apply economic pressures on Iran, a move that will almost certainly keep $4 a gallon or more at US pumps given broader supply side problems in the oil world. Or do they climb down over Iran, and risk looking weak in the Middle East? Neither is an edifying prospect in a Presidential election year, but it also points to a serious weakness in the US geopolitical position. America is soft, horribly soft, when it comes to domestic oil price pressures. What’s more, the Iranian’s know this. Tehran can dig in far deeper against international sanctions than the US ever will against its own political cycle.  Part of the problem is borne out of the vastly overhyped US ‘energy independence’ narrative being spun across the American political spectrum. US voters are taking this message to heart; they expect ‘American oil for American consumers at American prices’, devoid or broader international pressures and price considerations. But as Iranian sanctions have shown, this is a dangerous myth for US politicians to peddle – precisely because America is still inexorably linked to global hydrocarbon fundamentals. What happens in the Gulf of Aden still affects what happens in the Gulf of Mexico.  The fact that American voters aren’t fully aware of this blunt reality is deeply problematic for US foreign policy, not least because it precludes Washington from using the most effective geo-economic tools to hand. On Iran, the really serious power play is to bring China and India into the equation by persuading the Saudis to threaten to withhold oil from global markets. Security of supply and price implications would be more than enough to get China on board — either by putting serious pressure on Tehran to reconsider its nuclear options — or sever oil Persian oil ties until a solution could be found.  Alas, the US isn’t going to do that, not just because of the massive price implications such a Saudi move would have at US pumps, but because it’s now probably going to play a Janus-faced game over Iran. One side will be the illusion of pushing for global economic pressures on Tehran. The other, more important game will be getting prices back under $4 a gallon in time for US votes to be cast.  What that means in practice, is that despite US State Department bluster aimed at Beijing, the US will be reasonably happy to let India and China keep sourcing Iranian oil in order to stabilise global supply-demand fundamentals. Keeping Iran in the oil game is probably the only credible way of holding US domestic prices within a politically tolerable range, particularly as major concerns have already being raised as to how much spare capacity the Saudis’ actually have to cover nascent supply gaps. Assuming Asian off-take from Persian crude helps to steady the oil ship, intense discussions over the IEA Strategic Reserve will abate for now – even though a release remains a distinct possibility for Washington should it want consumers to $3 rather than $4 a gallon as the electoral clock ticks down.  That’s all perfectly fine for US electoral politics, but it comes with a major geopolitical cost. As long the Iranian’s know they can withstand international sanctions far easier than US politicians succumb to their ‘$4 Achilles heel’, Tehran will continue to inch closer and closer towards its enrichment aims. US sanctions will fail, American geo-economic prowess will be seriously questioned. What’s more, when Iran finally ‘goes nuke’, the geopolitical sparks will properly fly. At that point, $4 a gallon will seem cheap, very cheap for US consumers to top up the tank….
A European energy analyst thinks Washington will do little to halt the flow of Iranian oil because it would crater the U.S. economy.