Playing the oil card

Iran and the U.S. agree on one thing: Oil is the ultimate weapon.

NEW YORK – Washington and Tehran don’t agree on much these days. But in their conflict over Iran’s nuclear program, both seem willing to use oil as a political weapon.

The U.S. believes that sanctions on Iran’s energy exports might force Tehran to renounce its uranium-enrichment ambitions. Iran hopes its threats to withhold some or all of those exports will persuade the international community to back off.

If the two sides can’t agree on who would be punishing whom by playing the oil card, the likelihood of diplomatic resolution may be even more remote than is commonly accepted.

One thing is certain: A substantial reduction in Iran’s energy output – whether pushed or pulled from the market – would have a significant impact on global oil prices. Iran is the fourth-largest oil exporter in the world, behind only Saudi Arabia, Russia, and Norway. It sells more than 2.5 million barrels a day and is believed to have about 10 percent of the world’s proven reserves. Many analysts say a supply cut could combine with other market pressures (explosive demand growth in China and India, unrest in Nigeria, concerns that this year’s hurricane season will again damage U.S. refinery capacity) to quickly drive prices up to $80 to $100 a barrel.

Fortune