The hidden war Iran may wage on the oil market, according to Gary Sick

Gary Sick’s views on Iran have a lot of critics, who tend to view him as an apologist for the Iranian regime. (Here’s another example.)

It’s not new: his New York Times piece on the “October surprise” was a sensation when first penned during the 1980 Presidential campaign (Wikipedia has a balanced summary of the theory here). He said Monday evening at the New York Energy Forum that Jimmy Carter was “fired” from office that year by Ronald Reagan because of the holding of hostages by Iranian militants; the state of the US economy probably had a lot more to do with that, though the hostage crisis certainly was a factor.

In his remarks to the New York group, Sick–who worked for multiple administrations and is now a senior research scholar at Columbia University–conceded that he is part of a “tiny minority” with his views of the relations between the US and the Islamic Republic.

So while he discussed at length the politics of the long post-Shah standoff between the US and Iran, more intriguing was his discussion of what he thought might occur in the middle of this year. That’s when a European Union ban on importing Iranian crude is implemented, and it would be on top of what Sick called “an escalating array of sanctions” on Iranian shipping and banking, among other activities.

Barring other military action, Sick said he does not see an Iranian attempt to close the Strait of Hormuz in reaction to the EU ban, though it’s been threatened. He echoed what other observers have said: if Iran shuts the Strait of Hormuz, it would “be shooting themselves in the foot,” because it would cut off the country’s own flow of petroleum exports.

He incorrectly described Iranian exports to the European Union as 650,000 b/d; most estimates put it closer to 400,000 to 450,000 b/d. Three of the biggest customers of the country are Greece, Italy and Spain, all of them with troubled finances that aren’t in the best position to find new suppliers.

In the case of Greece, Sick said, Greece gets as from Iran at “a very good price, so they’re working like crazy with the Saudis to get the same price.” Much of Iran’s sales to Italy are for work that Italy’s ENI has performed in the country, “so it’s basically free. Untangling those costs is complicated.” The Italians are “scrambling to get enough to pay off their debts before July.”

“The sanctions, the way the way the West has structured them, are a form of economic warfare,” Sick said. “We’re going to cut off 50% of your revenues.”

But there are other things that might occur, according to Sick’s scenario.

He said it was a “not really pleasant” scenario. There might be some “unexplained explosions” in southern Iraq, heart of the country’s Basra field (where Shia predominate) and its Persian Gulf exports, Sick said. “Just at that point there is a mysterious breakdown in the UAE and Saudi shippings points. Nobody knows why, but it could be cyber-involved.”

The result would be a loss of anywhere from 800,000 b/d to 1.2 million b/d of Iraqi supply, and another half-million to 1 million b/d in supplies from Saudi Arabia and the UAE, according to Sick..

And Iran would be behind all of it, Sick said. “This is Iran’s weapon of mass destruction,” he said. “They can work things through the international economy that are really painful. It isn’t going to be pretty.”

That’s sort of the non-violent scenario Sick laid out, because he projected these developments as a result of reaction to financial sanctions and the EU cutoff. Sick was clear that he didn’t think military action was likely. “My consistent answer is that they (the US and/or Israel) won’t do it,” he said. We have pushed sanctions so they are indistinguishable from war.”

Sick talked about negotiations, but in the sort of comment that has led him for more than 30 years to be viewed as way, way too close to Tehran, he said of any new negotiating offer by the US to Iran: “Just give it to me. I will get it to the right address.”

You can follow his “tiny minority” views at his blog.

Platts