Want to stop Iran’s nukes? Use less oil


With the conclusion of a framework agreement over Iran’s nuclear agreement last week, many remain profoundly unsure whether the deal will successfully prevent Tehran’s acquisition of a nuclear weapon.

Under the terms of the agreement, much of Iran’s nuclear infrastructure will remain in place. Its Shahab-3 missiles are still capable of reaching Tel Aviv. And its capacity to produce enriched uranium, while diminished, would not be erased.

The diplomats negotiating with Iran are understandably focused on two key fuels, uranium and plutonium, but they ignore the one ancient fuel driving the entire process: oil.

Petrodollars have been financing Iran’s nuclear program for almost two decades. The world powers negotiating with Iran are struggling to establish a robust monitoring system to ensure that Iran cannot break out to build a bomb, but the average person can help slow the centrifuges simply by reducing their household and commercial demand for oil.

Even though Iranian oil has been proscribed by international sanctions, all oil is fungible. When oil consumption is measurably reduced in America and elsewhere, it lowers the value of oil in global markets. That cheapens the value of Iran’s oil, the financial furnace of its nuclear program.

According to data compiled by Bloomberg, Iran needs oil to sell at approximately $143 per barrel to maintain its social, governmental and military programs. But the global glut, combined with the recession and some conservation, have driven recent prices into the high $40s and $50s per barrel. This means that even if sanctions are relaxed, Iran will still be hurting at the pump and in the bank.

Iran has been storing its unsellable surplus in 13 supertankers parked in the Persian Gulf, Bloomberg reported. Each tanker can carry about 2 million barrels, and estimates based on the depth of their hulls suggest the ships are laden with crude. These ships have floated like seaborne warehouses for more than a year, and many suggest more than two years. In the meantime, Iran has cut its output from a pre-sanctions 2012 level of 2.5 million per day to just over 1 million today.

Oil impoverishment is the only reason Iran is now negotiating on its uranium enrichment. The two are linked.

In any international accord, it would take Iran some time to recover from its oil glut, especially with millions of barrels at sea waiting for customers. The floating oil reserves would likely be sold first.

Consumers and businesses can make that recovery more difficult without buying an electric car, peddling a bicycle to work or canceling a road trip. Transportation accounts for roughly two-thirds of U.S. petroleum imports. Most gasoline today contains 10 percent ethanol, an alcohol fuel derived from corn and other crops. The recent Hollywood documentary “Pump,” in which I made a brief appearance along with numerous other oil addiction experts, revealed that most modern motor vehicles can accept E-85 — that is, up to 85 percent ethanol with a simple software update, and in some cases a single click, automotive engineers explain.

Even more compelling, “Pump” demonstrates how more than 9 million American flex-fuel automobiles, the ones with a yellow gas cap, are already built to accept E-85. This one software update could drastically cut American oil consumption if ethanol supply rose commensurately.

The engineers in the “Pump” documentary demonstrated that the software update process takes only a few minutes. If government and commercial fleet managers, as well as ordinary consumers, see how easy it is to switch, America could be swept by a sea-change reduction in our dependence on foreign oil. Regardless of what the nuclear negotiators and inspectors do, average people could help permanently drive the outcome.

(Edwin Black is the author of “IBM and the Holocaust,” a New York Times best-seller, along with several books on the oil industry.)

Obama faces tough call on Iran oil sanctions


Just weeks after the election, President Barack Obama will be faced with a pivotal decision on oil sanctions on Iran, in which he will have to balance the need to stay tough on Tehran without pushing oil prices too high.

In considering whether to extend a new series of six-month exemptions to Washington's oil sanctions, the administration must decide whether China, India, South Korea and other nations have done enough to wean themselves from Iranian oil.

Forcing cuts that are too aggressive could fuel a new rally in oil prices, benefiting Iran and hurting allies. Accepting meager cuts risks criticism from Congress and Israel.

The sanctions are aimed at slashing Iran's oil revenues to pressure it to stop efforts to enrich uranium to levels that could be used in weapons. Tehran has said its nuclear program is strictly for civilian purposes.

On paper, the sanctions require Washington to continuously tighten the screws on Iran's exports “toward a complete cessation” of purchases, forcing importers to make deeper and deeper price and volume cuts in order to win “exceptions,” or waivers.

But the law allows the administration latitude to chart a middle ground in the sanctions, which have already proven more effective than some experts had forecast.

The sanctions require that importers must demonstrate that they are making “significant” reductions every six months, as measured by volume and price. What constitutes a “significant” reduction is at the administration's discretion.

“The point of this is that we would like to see a consistent and gradual reduction. That is the goal,” said a U.S. government official, who spoke on condition of anonymity.

Iran's oil exports hit a low of 860,000 barrels per day last month, down from 2.2 million bpd at the end of 2011. That reduction is already greater than some experts had forecast.

Critics are keeping close watch. Obama is expected to face questions about whether he has been tough enough on Iran later on Monday during a foreign policy debate with Republican candidate Mitt Romney, their last debate before the Nov. 6 presidential election.

The New York Times reported on Sunday that the United States and Iran have agreed in principle to private, bilateral negotiations on Iran's nuclear program, but both nations denied the report.

DIMINISHING RETURNS?

For countries including China, India and South Korea, the deadline for new waivers is December.

Even a key proponent of sanctions said he wonders about the need to force dramatically deeper cuts.

“We've probably reached the point of diminishing returns with respect to Iran's oil exports,” said Mark Dubowitz, the head of the Foundation for Defense of Democracies, who has pushed for stronger sanctions on Iran.

Dubowitz said it would take a great deal of work to cut global imports of Iranian oil much below 800,000 bpd. Lawmakers are now turning their attention to new types of sanctions that could more quickly hit Tehran's foreign reserves.

A QUESTION OF “SIGNIFICANCE”

So far, all major oil importers have been granted the exceptions. Without the waivers, the United States has the power to blacklist foreign banks handling the oil transactions from the U.S. financial system.

Precisely what qualifies as “significant” is kept confidential, however, and may vary from buyer to buyer.

“The law is remarkably vague about what the baseline is,” said Jeff Colgan, a professor at American University in Washington.

Japan had cut imports by 15-22 percent by the time it received its first waiver in March. It subsequently cut imports by more than a quarter each month except June, and won a second six-month waiver for the U.S. oil sanctions in September.

Senators Robert Menendez and Mark Kirk who co-authored the oil sanctions law last year have told the administration they believe a minimum cut should be about 18 percent for any nation seeking a waiver renewal, achieved through price discounts or volume reductions, a point Menendez underscored in a recent interview.

“We must make it clear – this is a big must – that absent some extraordinary circumstance, that we will not grant waivers to any nation that doesn't make our reduction benchmarks,” Menendez told Reuters earlier this month.

DELICATE BALANCE

The administration is likely to carefully weigh the cuts required against the impact on prices, since price gains help Iran, hurt allies, and harm the global economy, said Trevor Houser, a partner with Rhodium Group, a New York-based policy and economic consultancy.

“If you tighten the screws too hard and it causes oil prices to spike, then you both undermine the effectiveness of the sanctions and you erode support for the sanctions from other countries,” said Houser, a former State Department adviser.

Houser questioned how far Washington could push the sanctions while also keeping oil markets relatively stable.

Saudi Arabia, which has been pumping oil at its fastest rate in 30 years in order to make up for the diminishing exports from fellow OPEC member Iran, has limited additional capacity to tap if shipments fall further, analysts say.

The administration likely will face the most political scrutiny for its decision on a renewed waiver for China. China officially opposes the U.S. sanctions, but secured a waiver in June after a contract dispute resulted in steep import cuts in the first half.

Although its imports of Iranian oil rose in June to an 11-month high, they dropped in July and August to 25 percent below the same months in 2011, the most recent months for which data is available. China's first-half imports from Iran were down 20 percent from a year ago.

“China is a very different story and that's where we fear the administration will cook the books to give China a 'get-out-of-jail-free' card in order to avoid a showdown with America's largest creditor,” a senior Congressional aide said, on condition of anonymity.

With much bigger trade issues at stake, American University's Colgan believes a waiver for China is likely. “The trade consequences are unknown and potentially very bad if they start a trade war over this,” he said.

Khamenei dismisses sanctions, says Iran stronger than ever


Iranian Supreme Leader Ayatollah Ali Khamenei on Wednesday dismissed harsher sanctions imposed on Iran this month over its disputed nuclear activity, saying the country was “100 times stronger” than before.

A European Union embargo on Iranian crude oil took full effect on July 1 – a joint effort with the United States to force Tehran to curb nuclear energy work the Western powers say is a camouflaged bid to develop bombs, which Tehran denies.

Prices of goods have soared and the Iranian rial has plunged in value as broader, deeper sanctions have been introduced this year targeting Iran’s financial and energy sectors.

“The Iranian nation, through life, wealth and loved ones, has stood up to all plots and sanctions and has advanced to the extent that today we are 100 times stronger compared with 30 years ago,” Khamenei told a women’s conference in Tehran in a speech that was published on his official website.

“These days Westerners are being sensational about sanctions but they don’t understand that they themselves vaccinated Iran through their sanctions imposed over the last 30 years,” he said. Iran’s Islamic Revolution a little over three decades ago toppled the U.S.-backed shah.

Iranian officials regularly shrug off sanctions, saying they have little or no effect on the country. But a combination of increasing unemployment, substantial price rises and rampant inflation is creating tough new challenges for the government.

Industry sources say Iran’s oil exports have declined in the wake of the EU crude ban and extensive U.S. diplomatic efforts to get Iran’s main customers to cut their imports.

The United States imposed sanctions in 1979, soon after the Islamic Revolution that overthrew its monarchy. Successive U.S. administrations have added to the embargo, effectively creating a near total ban on any trade between it and Iran.

The U.N. Security Council has imposed four rounds of international sanctions specifically targeting Iran’s nuclear activities. Tehran says its uranium enrichment program is for peaceful energy purposes only.

Six world powers and Iran have had several rounds of negotiations on how to defuse concerns over its nuclear ambitions this year but found no common ground for a deal.

Senior diplomats from the EU and Iran will meet on July 24 for technical talks to try to salvage diplomatic efforts to resolve the decade-long standoff.

Reporting by Marcus George; Editing by Mark Heinrich

Iran threatens Israel; new EU sanctions take force


Iran announced missile tests on Sunday and threatened to wipe Israel “off the face of the earth” if the Jewish state attacked it, brandishing some of its starkest threats on the day Europe began enforcing an oil embargo and harsh new sanctions.

The European sanctions – including a ban on imports of Iranian oil by EU states and measures that make it difficult for other countries to trade with Iran – were enacted earlier this year but mainly came into effect on July 1.

They are designed to break Iran’s economy and force it to curb nuclear work that Western countries say is aimed at producing an atomic weapon. Reporting by Reuters has shown in recent months that the sanctions have already had a significant effect on Iran’s economy.

Israel says it could attack Iran if diplomacy fails to force Tehran to abandon its nuclear aims. The United States also says military force is on the table as a last resort, but U.S. officials have repeatedly encouraged the Israelis to be patient while new sanctions take effect.

Washington said the EU’s oil ban might force Tehran to give ground at the next round of nuclear talks, scheduled for this week in Istanbul.

Announcing three days of missile tests in the coming week, Revolutionary Guards General Amir Ali Hajizadeh said the exercises should be seen as a message “that the Islamic Republic of Iran is resolute in standing up to … bullying, and will respond to any possible evil decisively and strongly.”

Any attack on Iran by Israel would be answered resolutely: “If they take any action, they will hand us an excuse to wipe them off the face of the earth,” said Hajizadeh, head of the Guards’ airborne division, according to state news agency IRNA.

The missile tests will target mock-ups of air bases in the region, Hajizadeh said, adding that its ability to strike U.S. bases in the Gulf protects Iran from U.S. support for Israel.

“U.S. bases in the region are within range of our missiles and weapons, and therefore they certainly will not cooperate with the regime,” he told IRNA.

Iran has repeatedly unnerved oil markets by threatening reprisals if it were to be attacked or its trade disrupted.

The threat against the Jewish state echoed words President Mahmoud Ahmadinejad spoke in 2005, saying Israel “must be wiped off the page of time” – a phrase often translated as “wiped off the map” and cited by Israel to show how allowing Iran to get nuclear arms would be a threat to its existence.

The EU ban on Iranian oil imports directly deprives Iran of a market that bought 18 percent of its exports a year ago. The sanctions also bar EU companies from transporting Iranian crude or insuring shipments, hurting its trade worldwide.

“They signal our clear determination to intensify the peaceful diplomatic pressure,” British Foreign Secretary William Hague said in a statement.

The EU sanctions come alongside stringent new measures imposed by Washington this year on third countries doing business with Iran. The United States welcomed the EU sanctions as an “essential part” of diplomatic efforts “to seek a peaceful resolution that addresses the international community’s concerns about Iran’s nuclear program.”

White House spokesman Jay Carney said he hoped the sanctions would force Tehran to make concessions in technical-level talks with six world powers later this week.

MALICIOUS POLICIES

“Iran has an opportunity to pursue substantive negotiations, beginning with expert level talks this week in Istanbul, and must take concrete steps toward a comprehensive resolution of the international community’s concerns with Iran’s nuclear activities,” Carney said in a statement.

The United Arab Emirates and Bahrain – foes of Iran which face it across the oil-rich Gulf – announced their own joint air force exercises on Sunday which they said would take “several days,” their state news agencies reported.

In three rounds of talks between Iran and the United States, Russia, China, Britain, France and Germany, the Western powers have demanded Tehran halt high-grade uranium enrichment, ship out all high-grade uranium and close a key enrichment facility.

The talks lost steam at the last meeting in Moscow last month and there was not enough common ground for negotiators to agree whether to meet again. Officials – but not political decision-makers – meet in Turkey on Tuesday.

Washington sees the sanctions and talks as a potential way out of the standoff to avert the need for military action, but has not said it would block Israel from attacking Iran.

Tehran says it has a right to peaceful nuclear technologies and is not seeking the bomb. It accuses nuclear-armed states of hypocrisy. Officials said they were taking steps to reduce the economic impact of the new sanctions.

“We are implementing programs to counter sanctions and we will confront these malicious policies,” Mehr news agency quoted Iranian central bank governor Mahmoud Bahmani as saying.

Bahmani has struggled to prevent a plunge in the value of the rial currency and steadily rising inflation as the sanctions have taken effect. He said the effects of the sanctions were tough but that Iran had built up $150 billion in foreign reserves to protect its economy.

Oil Minister Rostam Qasemi said oil importing countries would be the losers if the sanctions lead to price rises.

“All possible options have been planned in government to counter sanctions,” Qasemi said on the ministry’s website.

Last Friday, another Revolutionary Guards commander, Ali Fadavi, said Iran would equip its ships in the Strait of Hormuz – the neck of the Gulf and a vital oil transit point – with shorter-range missiles.

Additional reporting by Marcus George and Isabel Coles in Dubai and by Jeff Mason in Washington; Writing by Robin Pomeroy; Editing by Peter Graff

US Senate Republicans block Iran sanctions vote


U.S. Senate Republicans blocked legislation for new economic sanctions on Iran’s oil sector on Thursday saying they needed more time to study the bill, a surprise move that drew anger from Democrats who wanted approval ahead of nuclear talks next week.

“I feel I’ve been jerked around,” Democratic leader Harry Reid said on the Senate floor after Republicans said they could not immediately approve the bill.

Senate Republican leader Mitch McConnell said his staff did not receive a draft of the bill until late on Wednesday night, and needed more time to make sure it was as strong as possible.

“I don’t think there is anything to be outraged about,” he told Reid on the floor. “Why don’t we get to work – work out the differences – and pass the resolution?”

Iran sanctions are politically popular and draw broad support from both sides of the political spectrum. The delay on the bill is one of many examples of partisan sniping that has stalled work in Congress ahead of November’s presidential and congressional elections.

Senators from both parties said they still expect the sanctions will pass, although the timeline was not immediately clear.

The House of Representatives passed a version of the bill in December that is tougher than the Senate’s in several areas. Differences would have to be worked out in the two versions before a final bill is sent to President Barack Obama.

The sanctions are meant to shut down any financial deals with Iran’s powerful state oil and tanker enterprises, stripping Tehran of crucial oil revenues.

The revenues support Iran’s nuclear program, which the United States says is a cover for developing the capability to build atomic bombs, while Iran says it is for civilian purposes.

The bill would build on penalties signed into law by Obama in December that threatened sanctions against foreign institutions trading with Iran’s central bank.

Democrats wanted to pass the proposed penalties ahead of talks between world powers and Iran next week in Baghdad, aimed at ensuring Iran does not build a nuclear bomb.

‘I WANT MORE ON THE TABLE’

Speaking on background, two Republican aides blamed Democratic leadership for failing to work out differences ahead of time. They said Reid went ahead with asking for unanimous agreement to pass the bill without a roll-call vote knowing that Republicans had concerns.

Two Democratic aides said the impasse came as a surprise. Reid found out Republicans would not support the bill only minutes before he asked for unanimous consent, one aide said.

Some Republicans said they wanted a stronger statement in the bill that the use of U.S. military force was an option in preventing Iran from building a nuclear bomb.

“These sanctions are great. I hope they will change Iranian behavior. They haven’t yet, and I don’t think they ever will,” said Senator Lindsey Graham of South Carolina. “I want more on the table.”

The draft bill included wording to gain support from Republican Senator Rand Paul by stating that nothing in the bill could be construed as a declaration of war or authorization of the use of military force against Iran or Syria.

Paul had blocked the bill in March over that issue.

Many senators, Democrats and Republicans, back a proposed resolution to reject the idea of “containment” of Iran if it does get the ability to make a bomb. Containment was the U.S. Cold War policy of containing, or checking, Soviet influence.

Democrats agreed to hold a separate vote on that resolution.

“Don’t hold the sanctions legislation hostage,” said Senator Robert Menendez, a Democrat and co-author of the bill, urging senators to pass the measure before leaving for the weekend.

The House on Thursday voted 401-11 to reject the idea of containment.

Opponents said the resolution by Republican Ileana Ros-Lehtinen, chairman of the House Foreign Affairs Committee, made war with Iran more likely by stating that containment of a nuclear-capable Iran would not be good enough.

“What? We haven’t had enough wars?” demanded Representative Dennis Kucinich, a Democrat, in debate on the issue earlier in the week. “At a time when the U.S. is engaging in its first successful direct talks with Iran for years, it is more critical than ever for Congress to support these negotiations.”

But Representative Howard Berman, also a Democrat, countered that the non-binding resolution simply expressed determination to prevent Iran from getting a bomb.

“It in no way can be interpreted as an authorization for use of military force,” Berman said.

Israel insists that military action against Iran would be warranted to prevent it from reaching nuclear weapons capability, as opposed to when it actually builds a device.

The Obama administration has not embraced that idea. Obama, who has asserted that military action remains a last resort if sanctions and diplomacy fails, has only said that Iran must not be allowed to develop or acquire a nuclear weapon.

The sanctions bill had support from the American Israel Public Affairs Committee, a powerful pro-Israel lobby group.

U.S. officials have said that while Iran may be maneuvering to keep its options open, there is no clear intelligence that the country has made a final decision to pursue a nuclear bomb.

Additional reporting by Rachelle Younglai, Timothy Gardner and Susan Cornwell in Washington and Jonathan Saul in London; Editing by Russell Blinch and Vicki Allen

Israel takes concerns about Iran to key partner China


Israel on Friday took its concern about Iran’s nuclear programme to one of Iran’s main partners, China, and hinted it could launch a preemptive attack on the Islamic Republic despite repeated calls by China to allow diplomacy to take its course.

China, which has close energy and trade ties with Iran, has urged a negotiated solution to the dispute over Iran’s nuclear ambitions and long opposed unilateral sanctions on Iran.

Iran insists its nuclear energy programme is purely non-military and has been adamant it will not abandon it under external pressure.

“For us, it’s crucial to explain our position to our Chinese partners,” Israeli Foreign Minister Avigdor Lieberman told reporters on a visit to Beijing.

“It’s crucial to clarify our position to China in the hope they understand our concerns, our problems,” he said, adding that Israel would “continue the dialogue” with China.

Chinese Premier Wen Jiabao warned Iran in January against any effort to acquire nuclear weapons but apart from that, China has shied away from speaking out strongly against Iran.

That position on Iran underscores the tricky path China is trying to steer between pressure from the United States and its allies and, on the other hand, expectations from Iran, which looks to China as a sympathetic power and a big oil customer.

But an increasingly tough-talking Israel is threatening to take military action, with or without U.S. support, if Iran is deemed to be continuing to defy pressure to curb its nuclear projects.

Speculation is growing that Israel could launch some form of strike against Iranian nuclear installations, which Israel sees as a threat to its existence.

“We prefer that the international community will resolve the Iranian issue through talks, P5+1, through some negotiations, sanctions etcetera,” Lieberman said.

“But if not, I think it’s our right to protect ourselves, to defend ourselves,” he added. “As I mentioned, we keep all options on the table.”

The P5+1 group, made up of the United States, Britain, France, Russia, China and Germany, accepted an offer last week from Iran for new talks on its nuclear energy programme.

Lieberman said Israel was hopeful of “positive progress” at the talks.

But despite Western sanctions inflicting increasing damage on Iran’s oil-based economy, Israel had not seen “readiness from the Iranian side to give up their nuclear ambitions or to stop their enrichment”, he said.

China has also resisted Western efforts to exert pressure on Iran by imposing sanctions on its oil exports, much of which flows to China.

Editing by Ben Blanchard and Robert Birsel

POLL: Most Americans would back US strike over Iran nuclear weapon


A majority of Americans would support U.S. military action against Iran if there were evidence that Tehran is building nuclear weapons, even if such action led to higher gasoline prices, a Reuters/Ipsos poll showed on Tuesday.

The poll showed 56 percent of Americans would support U.S. military action against Iran if there were evidence of a nuclear weapon program. Thirty-nine percent of Americans opposed military strikes.

Asked whether they would back U.S. military action if it led to higher gasoline prices, 53 percent of Americans said they would, while 42 percent said they would not.

The Reuters/Ipsos poll also found that 62 percent of Americans would back Israel taking military action against Iran for the same reasons.

U.S. President Barack Obama has said all options are on the table in dealing with Iran’s nuclear program, but he has encouraged Israel to give sanctions against Iran more time to have an effect.

Iran says its nuclear program is peaceful.

Higher gasoline prices, which have risen in part due to tension in the Middle East, have put political pressure on Obama as he fights for re-election later this year.

The president, a Democrat, has also faced criticism from his potential Republican rivals for being too soft on Iran and not supportive enough of Israel.

The poll showed Republicans were more willing to support military action by the United States or Israel than Democrats. Seventy percent of Republicans would back U.S. action, while 46 percent of Democrats and 51 percent of independents said the same.

The breakdown was similar when respondents were asked to factor in gasoline prices or their support of an Israeli military move.

“What we’re seeing is kind of a general trend that we always see, that Republicans tend to be more hawkish than Democrats or independents,” said Ipsos pollster Cliff Young. “Historically Republicans have been much more security-centric.”

A potential conflict with Iran has cast a foreign policy shadow over the U.S. election, which is expected to be dominated by voter concerns over the domestic economy.

Obama accused Republican presidential candidates earlier this month of “beating the drums of war” while failing to consider the consequences.

Former Pennsylvania Senator Rick Santorum, one of the top Republican presidential contenders, told the powerful pro-Israel lobby group AIPAC: “If Iran doesn’t get rid of nuclear facilities, we will tear them down ourselves.”

Despite Americans’ signs of tolerance of higher gasoline prices in the poll, Obama’s chances of getting re-elected are threatened by rising prices at the pump.

The poll was conducted from March 8-11 among 1,084 adults across the United States. It has a margin of error of 3.1 percentage points.

Editing by Cynthia Osterman

Iran boasts nuclear advances, deepening standoff


Iran proclaimed advances in nuclear know-how on Wednesday, including new centrifuges able to enrich uranium much faster, a move that may hasten a drift towards confrontation with the West over suspicions it is seeking the means to make atomic bombs.

Tehran’s resolve to pursue a nuclear program showed no sign of wavering despite Western sanctions inflicting increasing damage on its oil-based economy.

“The era of bullying nations has passed. The arrogant powers cannot monopolize nuclear technology. They tried to prevent us by issuing sanctions and resolutions but failed,” President Mahmoud Ahmadinejad said in a live television broadcast.

“Our nuclear path will continue.”

However, Iran’s Arabic-language Al Alam television said the government had handed a letter to EU foreign policy chief Catherine Ashton expressing readiness to “hold new talks over its nuclear program in a constructive way.”

An Ashton spokeswoman confirmed receipt of the letter, saying she was evaluating it and would consult with the United States, Russia, China and other partners among the big powers.

Iran has long refused to negotiate curbs on its nuclear program, saying it is intended to produce electricity for booming domestic demand and for other civilian uses.

The United States and Israel have not ruled out military action against Iran if diplomacy and sanctions fail.

Washington however played down Iran’s latest announcement, saying its reported advances were “not terribly new and not terribly impressive.”

“We frankly don’t see a lot new here. This is not big news. In fact it seems to have been hyped,” a State Department spokeswoman said.

IRAN DENIES BANNING OIL EXPORTS TO EU

Iran’s Oil Ministry denied a state media report that it had cut off oil exports to six European Union states.

“We deny this report … If such a decision is made, it will be announced by Iran’s Supreme National Security Council,” a spokesman for the ministry told Reuters.

Iran’s English language Press TV said Tehran had halted oil deliveries to France, Portugal, Italy, Greece, Netherlands and Spain—its biggest EU customers—in retaliation for an EU ban on Iranian crude due to take effect in July.

The Islamic Republic is the world’s No. 5 oil exporter, with 2.6 million barrels going abroad daily, and the EU consumes around a fifth of those volumes.

With Western sanctions now spreading to block Iran’s oil exports and central bank financing of trade, Tehran has been resorting to barter to import staples like rice, cooking oil and tea, commodities traders say.

The most recent talks between world powers and Iran failed in January 2011 because of Tehran’s unwillingness to discuss transparent limits on enrichment, as demanded by several U.N. Security Council resolutions passed since 2006.

NEW GENERATION OF CENTRIFUGE

The nuclear achievements proclaimed by Tehran involved a new line of uranium enrichment centrifuge and the loading of its first domestically produced batch of fuel into a research reactor that is expected to soon run out of imported stocks.

Tehran has for some years been developing and testing new generations of centrifuges to replace its outdated, erratic “P-1” model. In January it said it had successfully manufactured and tested its own fuel rods for use in nuclear power plants.

Ahmadinejad said the “fourth generation” of centrifuge would be able to refine uranium three times as fast as previously.

If Iran eventually succeeded in introducing modern centrifuges for production, it could significantly shorten the time needed to stockpile enriched uranium, which can generate electricity or, if refined much more, nuclear explosions.

Last year, Iran installed two newer models for large scale testing at a research site near the central town of Natanz.

But it remains unclear whether Tehran, under increasingly strict trade sanctions, has the means and components to make the more sophisticated machines in industrial quantity.

“We have seen this before. We have seen these announcements and these grand unveilings and it turns out that there was less there than meets the eye. I suspect this is the same case,” said Shannon Kile at the Stockholm International Peace Research Institute (SIPRI).

However, Ahmadinejad said Iran had significantly increased the number of centrifuges at its main enrichment site at Natanz, saying there were now 9,000 such machines installed there.

In its last report on Iran, in November, the U.N. nuclear watchdog said there were 8,000 installed centrifuges at Natanz, of which up to 6,200 were operating.

MAJOR THREAT, FRANCE SAYS

France said Tehran’s latest moves again demonstrated that it would rather ignore international obligations than cooperate.

A British Foreign Office spokesman said: “(This) does not give any confidence that Iran is ready to engage meaningfully on the international community’s well-founded concerns about its nuclear program. Until it does so we’ll only increase peaceful and legitimate pressure on Iran to return to negotiations.”

Russia said global powers must work harder to coax concessions from Iran, warning that Tehran’s willingness to compromise was waning as it makes progress toward the potential capability of building nuclear warheads.

Making a case for a renewed dialogue, Deputy Foreign Minister Sergei Ryabkov said U.N. sanctions and additional measures introduced by Western nations had had “zero” effect on its nuclear program.

Iran has threatened retaliation for any attack or effective ban on its oil exports, suggesting it could seal off the main Gulf export shipping channel, the Strait of Hormuz, used by a third of the world’s crude oil tankers.

NEW FUEL FOR RESEARCH REACTOR

State television aired live footage of Ahmadinejad loading Iranian-made fuel rods into the Tehran Research Reactor and called this “a sign of Iranian scientists’ achievements.”

The Tehran reactor produces radio isotopes for medical use and agriculture. Iran says it was forced to manufacture its own fuel for the Tehran reactor after failing to agree terms for a deal to obtain it from the West.

In 2010, Iran alarmed the West by starting to enrich uranium to a fissile purity of 20 percent for the stated purpose of reprocessing into special fuel for the Tehran reactor.

In boosting enrichment up from the 3.5 percent level suitable for powering civilian nuclear plants, Iran moved significantly closer to the 90 percent threshold suitable for the fissile core of a nuclear warhead.

Analysts remained doubtful that Iran would be able to operate the research reactor with its own special fuel.

“As usual, the announcement surely is exaggerated. Producing the fuel plates … is not so hard. But the plates have to be tested for a considerable period before they can be used safely in the reactor,” said Mark Fitzpatrick of London’s International Institute for Strategic Studies.

“If Iran is really running the reactor with untested fuel plates, then my advice to the residents surrounding the building would be to move somewhere else. It will be unsafe.”

Spent fuel can be reprocessed into plutonium, the alternative key ingredient in atomic bombs. But Western worries about Iran’s nuclear program have focused on its enrichment program, which has accumulated enough material for up to several bombs, in the view of nuclear proliferation experts.

Analysts say the fuel rod development itself will not put Iran any closer to producing nuclear weapons, but could be a way of telling Tehran’s adversaries that time is running out if they want to find a negotiated solution to the dispute.

Iran appears to have overcome one serious recent obstacle to nuclear development by succeeding in neutralizing and purging the “Stuxnet” computer virus from its nuclear machinery, European and U.S. officials and private experts told Reuters. Many believe Israeli operators planted the virus.

Additional reporting by Mitra Amiri, Ramin Mostafavi in Tehran, Fredrik Dahl in Vienna, Steve Gutterman in Moscow, John Irish in Paris, Dmitry Zhdannikov and Adrian Croft in London; Editing by Mark Heinrich

Iran shrugs off latest U.S. sanctions, trade suffers


Iran castigated its U.S. adversary on Tuesday over new financial measures to disrupt Iranian commerce, and a default on payment for rice purchases highlighted the encroachment of sanctions on the staples of everyday life.

Lawmakers in Tehran vowed to ban crude exports to European countries even before an EU oil embargo takes effect.

The U.S. sanctions, targeting Iran’s central bank and giving U.S. banks new powers to freeze Iranian government assets, were the latest in a tightening web of international measures aimed at forcing the Islamic Republic to scrap sensitive nuclear work.

“It is an antagonistic move, psychological warfare which has no impact… There is nothing new, it has been going on for over 30 years,” Iranian Foreign Ministry spokesman Ramin Mehmanparast said, referring to three decades of U.S.-Iranian hostility.

Rice exporters said Iranian buyers had defaulted on payment for 200,000 tonnes of rice from their top supplier India in another sign that Western financial sanctions are disrupting trade, even in one of Iran’s food staples.

While a plunging rial has made forward purchases costlier, the sanctions are hampering Iranian traders who have used Dubai-based middlemen to keep paying Indian rice suppliers.

Grain ships are docked outside Iranian ports, traders are not booking fresh cargoes and exports of staples to Iran such as maize are falling due to problems collecting payment from buyers. Maize is used widely to feed livestock and shortages, when they work their way through, could force farmers into stress slaughter.

Graphic by Reuters

Tension with the West rose last month when the United States and the European Union targeted Iranian oil exports in their efforts to halt Tehran’s suspected quest for an atomic bomb.

Mehmanparast said the pressure would not deter Iran from pursuing a nuclear program it says has only peaceful purposes. “Our history has shown that sanctions, which are totally illogical, have accelerated our nation’s progress,” he added.

REPRISAL SANCTIONS

Stung by U.S. President Barack Obama’s latest financial jab, Iranian MPs promised to speed passage of a bill to oblige the government to ban oil exports to some EU states well before the 25-nation bloc phases in its own embargo in July.

“The draft bill has been almost finalized. It will oblige the government to immediately cut oil exports to the EU. The bill also will ban import of any goods from the EU,” lawmaker Parviz Sarvari told Iran’s semi-official Fars news agency.

Washington and its allies have been cranking up pressure on Iran to cut off the government’s access to capital and oil revenues with the goal of pushing Tehran back into negotiations to resolve the nuclear stand-off through diplomacy.

Mehmanparast said Iran would soon write to EU foreign policy chief Catherine Ashton about resuming talks with big powers, although he added that its nuclear rights were “not negotiable.”

The last talks in January 2010 failed because of Iran’s refusal to halt its sensitive uranium enrichment work, as demanded by the U.N. Security Council and six world powers.

Washington and Israel have not ruled out military action if diplomacy fails to resolve Iran’s nuclear row.

Iran has warned of a “painful” answer, saying it would hit Israel and U.S. bases in the Gulf as well as block the vital Gulf oil shipping route through the Strait of Hormuz.

The measures authorized by Obama on Sunday are likely to slow Iran’s trade with Asia by making payments more difficult, traders said on Tuesday, although the more determined can still find a route through Middle Eastern intermediaries.

U.S. sanctions now encompass all Iran’s financial institutions and oblige financial bodies doing business in the United States to block and freeze transactions with a suspected link to Iran. Previous sanctions had only required American banks to reject those transactions.

TRADE HEADACHES

Asian importers of Iranian crude, fuel oil and iron ore will find the measures snarl payment, already often routed via Middle East middlemen. Iran will have to take more payment in illiquid currencies, raising costs and piling pressure on its rial.

On January 26, Iran announced an 8 percent devaluation of the rial and said it would enforce a single exchange rate, aiming to stamp out a black market where the dollar’s value has soared due to fears over new sanctions imposed by the West.

“Iranian cargoes I can get, that’s not a problem. But how to pay is a problem,” said an iron ore trader in New Delhi.

Vijay Setia, president of the All India Rice Exporters’ Association, said the Iranian default had prompted him to ask the Indian government to step in. “It is a serious issue and we do not rule out further payment defaults by Iran,” he said.

Setia said India should not send any more rice to Iran on credit, adding suppliers such as those in Thailand, Vietnam and Pakistan had already stopped doing so.

Iranian fuel oil shipments through Singapore are slowing as sanction worries deter traders, while some Iranian iron ore exporters are accelerating loadings to China for fear of even more difficulty procuring ships and payment later this month.

Iran’s economy is already so weakened that its oil exports are more valuable than its imports of food and consumer goods, making it difficult to offset its exports by paying for imports.

Additional reporting by Lucy Hornby in Beijing and Ratnajyoti Dutta and Mayank Bhardwaj in New Delhi; Writing by Alistair Lyon; editing by Janet McBride

Israel says Iran has material for four A-bombs


Israel estimated on Thursday that Iran could make four atomic bombs by further enriching uranium it has already stockpiled, and could produce its first within a year of deciding to build one.

But in his rare public remarks, Major-General Aviv Kochavi, chief of military intelligence, held out the possibility stronger international sanctions might dissuade Tehran from pursuing a policy he had no doubt was aimed at developing nuclear weapons, despite Iranian denials.

Citing figures similar to those from the U.N. nuclear agency, Kochavi told Israel’s annual Herzliya Conference on strategic affairs: “Iran has accumulated more than 4 tonnes of uranium enriched to a level of 3.5 percent and nearly 100 kilos at an enrichment level of 20 percent.

“This amount of material is already enough for four atomic bombs.”

Nuclear bombs require uranium enriched to 90 percent, but Western experts say much of the effort required to get there is already achieved once it reaches 20-percent purity, shortening the time needed for any nuclear weapons “break-out.”

One former U.N. inspector said last month Iran could have enough 20-percent uranium for one bomb – about 250 kg of the material – in about a year from now.

Tehran says it will use 20 percent-enriched uranium to convert into fuel for a research reactor making isotopes to treat cancer patients. Western officials say they doubt that the country has the technical capability to do that.

Referring to Iranian Supreme Leader Ayatollah Ali Khamenei, in whose country’s hands Israel believe a nuclear weapon would threaten the survival of the Jewish state, Kochavi said:

“From the moment Khamenei gives an order … to speed up production of the first nuclear explosive device, we estimate it will take about a year to complete the task.”

Arming a missile with a nuclear warhead, he added, could take a year or two longer.

Western experts’ estimates of how quickly Iran could assemble a nuclear weapon if it decides to do so range from as little as six months to a year or more. Some believe Iran hopes to develop nuclear technology but stop short of building weapons, a move from which it is barred by treaty commitments.

In a report in November, the United Nations’ International Atomic Energy Agency said Iran had almost 5 tonnes of low-enriched uranium and, citing data from September, 73.7 kg of uranium with a purity of 20 percent.

“Iran continues to contend that its program is for peaceful and civilian purposes,” Kochavi said.

“But a long series of solid, strong data in our hands prove beyond any doubt that Iran is continuing to engage in developing nuclear weapons,” he said in the speech, in which he steered clear of discussing Israel’s military options.

Israel, widely believed to possess the Middle East’s only nuclear arsenal, has said it would use force if necessary to prevent Tehran from acquiring nuclear weapons.

It has made little comment on Iranian accusations that its agents, along with those of its Western allies, are behind assassinations and explosions that appear to form part of a covert war to sabotage Iran’s nuclear development capacity.

In separate remarks in Tel Aviv, Israeli Defense Minister Ehud Barak said “we are in a period of diplomacy and sanctions” in trying to curb Iran’s nuclear ambitions.

“It is clear to all that there is no need to take any option off the table, that there needs to be intensive and urgent diplomacy and that sanctions on Iran need to include not only on oil but on the financial system and the central bank,” Barak told reporters.

Washington and the European Union have imposed tighter sanctions in recent weeks on both Iran’s oil exports and on international financial transactions with Tehran.

Kochavi said the current sanctions have not led to a change in Iranian strategy, but could still have an effect.

“But the stronger the (pressure), the greater the potential for the regime – which is worried first and foremost about its survival – to reconsider,” he said.

Tension between Iran and the West over Iran’s nuclear work has increased since November, when the IAEA published a report that said Tehran appeared to have worked on designing a nuclear weapon.

Iran says its nuclear energy program is peaceful and aimed at generating electricity and other civilian uses.

Editing by Alastair Macdonald

EU bans Iranian oil, Tehran responds with threats


The European Union banned imports of oil from Iran on Monday and imposed a number of other economic sanctions, joining the United States in a new round of measures aimed at deflecting Tehran’s nuclear development program.

In Iran, one politician responded by renewing a threat to blockade the Strait of Hormuz, an oil export route vital to the global economy, and another said Tehran should cut off crude shipments to the EU immediately.

That might hurt Greece, Italy and other ailing economies which depend heavily on Iranian oil and, as a result, won as part of the EU agreement a grace period until July 1 before the embargo takes full effect. Angry words on either side helped nudge benchmark Brent oil futures above $110 a barrel on Monday.

A day after a U.S. aircraft carrier, accompanied by a flotilla that included French and British warships, made a symbolically loaded voyage into the Gulf in defiance of Iranian hostility, the widely expected EU sanctions move is likely to set off yet more bellicose rhetoric in an already tense region.

Some analysts say Iran, which denies accusations that it is seeking nuclear weapons, could be in a position to make them next year. So, with Israel warning it could use force to prevent that happening, the row over Tehran’s plans is an increasingly pressing challenge for world leaders, not least U.S. President Barack Obama as he campaigns for re-election in November.

Israeli Prime Minister Benjamin Netanyahu, who has voiced skepticism about the chances of Iran being persuaded by non-military tactics, called the EU sanctions a “step in the right direction” but said Iran was still developing atomic weapons.

Israel, assumed to have the only nuclear arsenal in the Middle East, views the Iranian nuclear program as a threat to its survival.

Meeting in Brussels, foreign ministers from the 27-state EU, which as a bloc is Iran’s second biggest customer for crude after China, agreed to an immediate ban on all new contracts to import, purchase or transport Iranian crude oil and petroleum products. However, EU countries with existing contracts to buy oil and petroleum products can honor them up to July 1.

EU officials said they also agreed to freeze the assets of Iran’s central bank and ban trade in gold and other precious metals with the bank and state bodies.

Along with U.S. sanctions imposed by Obama on December 31, the Western powers hope that choking exports and hence revenue can force Iran’s leaders to agree to curbs on a nuclear program the West says is intended to yield weapons.

EU SEEKS TALKS

The United Nations’ nuclear watchdog, the International Atomic Energy Agency, confirmed plans for a visit next week by senior inspectors to try and clear up suspicions raised about the purpose of Iran’s nuclear activities. Tehran is banned by international treaty from developing nuclear weaponry.

“The Agency team is going to Iran in a constructive spirit, and we trust that Iran will work with us in that same spirit,” IAEA chief Yukiya Amano said in a statement announcing the December 29-31 visit. “The overall objective of the IAEA is to resolve all outstanding substantive issues.”

EU foreign policy chief Catherine Ashton said of the new sanctions: “I want the pressure of these sanctions to result in negotiations … I want to see Iran come back to the table and either pick up all the ideas that we left on the table … last year … or to come forward with its own ideas.”

Iran has said lately that it is willing to hold talks with Western powers, though there have been mixed signals on whether conditions imposed by either side make new negotiations likely.

The Islamic Republic insists it is enriching uranium only for electricity and other civilian uses.

It has powerful defenders against the Western action in the form of Russia and China, which argue that the new sanctions are unnecessary, and can also probably count on China and other Asian countries to go on buying much of its oil, despite U.S. and European efforts to dissuade them.

Russia Foreign Minister Sergei Lavrov, classifying the EU embargo among “aggravating factors,” said Moscow believed there was a good chance that talks between the six global powers and Iran could resume soon and that Russia would try to steer both Iran and the West away from further confrontation.

U.S. expects Iran sanctions to bear results within two months


The Obama administration expects a significant drop in foreign dealings with the Central Bank of Iran in the next two months.

U.S. officials launched a campaign to have countries that deal with Iran to comply with new sanctions as soon as President Obama signed them into law on Dec. 31, a senior administration official said Wednesday in a briefing for Israeli and Jewish media.

The sanctions in the law target third parties that deal with Iran’s financial and energy sectors; for years the United States has banned dealings by its own citizens with those sectors.

The sanctions on non-petroleum dealings with Iran’s financial sector kick in within 60 days of the signing, and the Obama administration expects “significant” changes by that time.

Sanctions on Iran’s energy sector are expected to have an effect within three months, the official said, reflecting the timelines for such sanctions written into the law.

Much of the effort has focused on persuading nations that deal with Iran to diversify their intake of oil from other suppliers, notably Saudi Arabia and Libya, or conversely on having those countries use the sanctions as leverage to force Iran to heavily discount its oil.

In the latter case, the countries would agree to backchannel deals with Iran to avert U.S. sanctions and demand a cut in price as compensation.

There are signs that China and India, both major purchasers of Iranian oil, already have responded, the official said. China has sought discounts from the Iranians and is seeking to diversify its intake, as is India, the official said.

The overall goal of the sanctions is to cut income to Iran. The official said the Obama administration has calculated that the sanctions will not affect U.S. gasoline prices.

Iran threatens to cut off Mideast oil


Iran will close the Strait of Hormuz if its oil exports are subjected to foreign sanctions, the Islamic Republic’s official news agency reported.

“If they impose sanctions on Iran’s oil exports, then even one drop of oil cannot flow from the Straits of Hormuz,” IRNA quoted Mohammad Reza Rahimi, Iran’s first vice-president, as saying, referring to Western countries.

Oil from Persian Gulf countries travels through the Straits of Hormuz on its way to oil-importing countries around the world. The strait is the Persian Gulf’s only outlet and is bordered by Iran, Oman and the United Arab Emirates.

Ehud Barak plays down talk of war with Iran


Defense Minister Ehud Barak played down Tuesday speculation that Israel intends to strike Iranian nuclear facilities, saying no decision had been made on embarking on a military operation.

“War is not a picnic. We want a picnic. We don’t want a war,” Barak told Israel Radio before the release this week of an International Atomic Energy Agency (IAEA) report on Iran’s nuclear activity.

“(Israel) has not yet decided to embark on any operation,” he said, dismissing as “delusional” Israeli media speculation that he and Prime Minister Benjamin Netanyahu had chosen that course.

But he said Israel had to prepare for “uncomfortable situations” and ultimately bore responsibility for its own security.

All options to curb Tehran’s nuclear ambitions should remain open, Barak said, repeating the official line taken by Israel, which has termed a nuclear-armed Iran a threat to its existence.

Israel is widely believed to have the Middle East’s only nuclear arsenal, something it has never confirmed or denied under a policy of strategic ambiguity to keep Arab and Iranian adversaries at bay.

Ahmad Vahidi, Iran’s defense minister, cautioned against any military strike on its atomic facilities. “We are fully prepared for a firm response to such foolish measures by our enemies,” Vahidi was quoted as saying by Iran’s student news agency.

Western diplomats said the report by the U.N. nuclear watchdog is expected to show recent activity in Iran that could be put to developing nuclear bombs, including intelligence about computer modeling of such weapons.

Iran says its uranium enrichment program is aimed at generating electricity only.

“I estimate that it will be quite a harsh report … it does not surprise Israel, we have been dealing with these issues for years,” Barak said.

He voiced doubt, however, that the U.N. Security Council, where Tehran’s traditional sympathizers China and Russia have veto power, would respond to the IAEA’s findings by imposing tough new sanctions following four previous rounds of measures.

“We are probably at the last opportunity for coordinated, international, lethal sanctions that will force Iran to stop,” Barak said, calling for steps to halt imports of Iranian oil and exports of refined petroleum to the Islamist Republic.

Such steps, he said, “will need the cooperation of the United States, Europe, India, China and Russia—and I don’t think that it will be possible to form such a coalition.”

Moscow has called for a step-by-step process under which the existing sanctions would be eased in return for actions by Iran to dispel concerns over its nuclear program.

At a news conference in Berlin, Russian President Dmitry Medvedev said “militarist statements to the effect that Israel or other countries use force against Iran or any other country in the Middle East” represented “very dangerous rhetoric.”

Speculation in Israel about an imminent attack on Iran was fueled last week by the Jewish state’s test-launching of a long-range missile and comments by Netanyahu that Tehran’s nuclear program posed a “direct and heavy threat.”

Pressed in the radio interview about a military option, Barak said he was aware of fears among many Israelis that a strike against Iran could draw catastrophic retaliatory missile attacks by Tehran and its Palestinian Hamas and Lebanese Hezbollah allies.

“There is no way to prevent some damage. It will not be pleasant,” Barak said. “There is no scenario for 50,000 dead, or 5,000 killed—and if everyone stays in their homes, maybe not even 500 dead.”

Israel held a wide-scale civil defense exercise last week, a drill that Israeli officials said was routine and scheduled months ago.

Interviews by Reuters with government and military officials, as well as independent experts, suggest that Israel prefers caution over a unilateral strike against the Iranians.

Iran has repeatedly said it would respond to any attack by striking U.S. interests in the Middle East and could close the Gulf to oil traffic, causing massive disruption to global crude supplies.

Many countries like Russia and U.S. allies Germany and France have opposed any strike against the Islamic Republic, saying it could cause “irreparable damages,” suggesting that the dispute should be resolved through diplomatic means.

The United States says it remains focused on using diplomatic and economic levers to pressure Iran.

Additional reporting by Fredrik Dahl in Vienna and Tehran and Berlin bureaux; Editing by Mark Heinrich

U.S. sanctions hit Iran oil firm


A subsidiary of Iran’s Swiss-based national oil company is the latest firm to be sanctioned under new U.S. measures.

On Sept. 30, the United States sanctioned Naftiran Intertrade Company under the Iran Sanctions Act passed by Congress earlier in the year.

Companies that reportedly have told the United States they have stopped doing business with Iran include the Turkish refiner Tupras; the French oil group Total; Royal Dutch Shell; Kuwait’s Independent Petroleum Group; and India’s Reliance. BP and Shell have told the State Department that they are no longer supplying jet fuel to Iran Air.

Last week, Washington placed financial and travel sanctions on eight senior Iranian officials accused of human rights violations.

“The president is sending a clear message: The United States is taking decisive action to address the looming nuclear threat from Iran,” House Speaker Nancy Pelosi said in a statement.

Israel-Iran war talk blamed for oil price frenzy


WASHINGTON (JTA)—Even if the tough talk between Israel and Iran never comes to blows, it’s already hitting consumers where it hurts—at the gas pump.

Experts say that talk of an Israeli strike on Iran is a key part of what’s unsettling already volatile oil markets.

“It’s clearly having an effect on oil markets as they continue their march upward,” said Tom Drennen, an oil markets expert at Hobart and William Smith Colleges in upstate New York.

Oil prices soared to a record high of more than $144 a barrel last Wednesday after Iranian Foreign Minister Manouchehr Mottaki suggested to the United Nations that Iran would hit back in the event of an Israeli strike.

And after Israeli Transportation Minister Shaul Mofaz said last month that an Israeli strike would be “inevitable” if Iran develops a nuclear bomb, oil prices had their highest single-day jump in history.

Mofaz, a former chief of staff of the Israel Defense Forces, is also the chief negotiator in the U.S.-Israel strategic dialogue. Some pointed to his pronouncements as evidence that his Bush administration interlocutors view such a possibility positively, but others downplayed Mofaz’s remarks as indeliberate blustering.

Even if it’s all just talk, the problem for consumers is that this intensified speculation drives the markets.

“Traders on the floor look out into forward months, and when there’s a factor that will disrupt supplies, they will lock supplies a bit further out,” said David Pomfrey, the deputy director for energy and national security at the independent Center for Strategic and International Studies.

Securing supplies ahead of time keeps oil off the market, driving up prices.

Market fluctuation is more common in markets driven primarily by rumors and speculation rather than facts, Pomfrey said.

“It’s a network of people whispering to each other,” he said.

Speculators are now asking whether an Israeli strike on Iran would be limited to nuclear targets or if Israel would try to hit other sites as part of its attack strategy. For example, if Iran’s ports were damaged, the Islamic Republic’s major oil trading partners, such as China, might suffer. That likely would prompt a run on other markets.

Then there’s the question of the Iranian response.

“Would they try to use the leverage they have to cut off their oil flows into the world markets?” Pomfrey asked. “It would cost them, but it does allow them to impose penalties.”

The nightmare scenario would be if Iran used its regional military superiority to shut down the Straits of Hormuz, a key passage for oil tankers. That would cut supplies from the other major producers, including Saudi Arabia, Kuwait and the Persian Gulf emirates.

“The whole notion that if something happened and Iran was willing to shut down the straits, that would send prices who knows where,” Drennen said.
Experts say the effect of tensions with Iran should not be overstated. Unrest within Nigeria, another major oil supplier, also was a major factor in driving up prices.

“It’s hard to even tell” what the major factor is, said Michael O’Hanlon, a specialist in U.S. national security policy at the Brookings Institution. “The market is so easily spooked, it’s hard to separate anything from the noise.”

In recent weeks, speculation that Israel might strike Iran in the diplomatic dead zone between the U.S. election on Nov. 7 and the presidential inauguration on Jan. 21 has intensified in Washington.

That timing would give Israel a chance to get backing for a strike from President Bush, a staunch defender of Israel’s right to a pre-emptive defense, as well as spare the incoming president the difficulty of explaining such an attack.

The effect on markets of attack talk likely was a factor in this week’s effort by U.S. officials to tone down the rhetoric, Drennen said.

Bush, for instance, said Wednesday that he had made it clear to Israel that diplomacy was still the preferred option with Iran. And Adm. Mike Mullen, the chairman of the U.S. Joint Chiefs of Staff, warned of the dire consequences of an Israeli strike.

“The U.S. would be thinking very seriously that they would be very careful about what they say in public,” Drennen said. “Any notion that they are considering such a move or Israel is considering such a move will have an affect. Every $2 increase in a barrel of oil means another five cents at the pump, and I’m not sure how much more consumers are going to take.”