UNITED STATES (OBSERVATORY NEWS) — Trump has 60 days to the point of no return in relations with Iran. Unhappy with the Iranian nuclear deal signed during the Obama administration, Trump pulled the U.S. out of it in 2018 and imposed sanctions as part of a campaign of maximum pressure on Iran.
As a result, Iranian oil exports fell from 2.5 million barrels per day to 0.1-0.2 million barrels per day this summer. Even in the midst of sanctions before the conclusion of the nuclear deal, Iran could export about 1.1 million barrels per day.
Oil export of 2.5 million barrels per day brings 40% of the Iranian government. 15% of the national budget of Iran is allocated for defense and 85% for pensions, healthcare, education and infrastructure development.
The collapse in oil revenues and sanctions forced the Iranian government to cut or delay some spending, as well as pay bills by printing money. Inflation rose to 43%, and the cost of food and medicine increased by 40-60% according to EU data.
As a result, some Iranians can no longer afford fresh food. Despite the collapse of the economy, housing prices have doubled, according to the Financial Times. This type of hyperinflation usually comes next to the aggressive printing of money by the government, which is trying to pay its bills for lack of income – in this case, oil revenues.
Tehran’s options are limited. The government of Iranian President Hassan Rouhani is not ready to accept US conditions, but Iran is unable to defeat the United States militarily.
The White House believes that sanctions will break the Iranian government. US Secretary of State Mike Pompeo said Iran’s GDP could fall by 12-14% due to the export of Iranian oil to the country’s GDP.
Alas, sanctions will not take effect. Iran was sanctioned most of the time after the 1979 revolution, but the Ayatollahs are still in power. Sanctions are more likely to cause resistance than surrender. However, what can a cornered Iran do? Tehran’s capabilities are limited due to the increase in the cost of the US sanctions regime. Instead of yielding to Washington, Iran could risk a war to demonstrate to the United States that the political cost of sanctions against Iran is too high.
This includes striking the United States, its allies and the global economy. But how to do that?
Iranians need to strike, but so that they are not called aggressors. The war, especially the protracted one, in which Iran will be perceived as the initiator, will turn into a disaster for Tehran. In addition, if the case develops into an open military conflict, the US or Saudi Arabia must be perceived as the aggressor.
This will limit Iran’s ability to strike directly at US or Saudi Arabia’s military assets or conduct operations with large civilian casualties. At any time, Iranians can launch a pair of cruise missiles into a USS, but this will infuriate the American public and take America to war. Iran does not need this.
Rather, with the help of indirect attacks against Saudi oil facilities and infrastructure, Iran hopes to provoke US retaliation. Then Iran will turn to the world community, claiming that it simply protects its vulnerable population from aggressive and unfair treatment by the United States and that any actions of Tehran are justified in terms of its legitimate interests.
But here it is important not to cross the fine line. The implementation of this strategy began in early summer, when an American drone was shot down. Then oil tankers were captured, and more recently, attacks on Saudi oil facilities were carried out.
The US administration, fearing war, limited itself to tightening sanctions against the Iranian central bank, tightening the financial loop in such a way as to create something like an economic blockade. Tehran has no choice but to intensify aggression.
The team that attacked Saudi sites will return to take another shot. In light of all this, one cannot help but wonder about the fire at sections of the Haramain railway station worth $ 7.3 billion in Jeddah on Monday, September 29. The death sentence imposed on the alleged U.S. spy on October 1 will be another blow, as Tehran hopes to reinforce the Trump administration’s reaction.
And now you can make assumptions as to where and when strikes will be delivered. If the Iranians intend to focus on Saudi oil operations, then Abkaik will be the most attractive target, alternative options are export objects of Saudi oil in Ras Tanura or Ras al-Khaimah in the Persian Gulf. Alternatively, Tehran may try its hand at a different Saudi infrastructure, but the threats to oil trading in the Persian Gulf will have the greatest impact on Washington.
And now is not enough time. If too much time passes between the two strikes, Washington will wave Tehran away, considering these actions unserious, and Saudi Arabia will be able to better prepare for the defense. The next attack should happen within 6 weeks, from mid-October to early November. A couple more punches should do the trick, and Tehran will complete its program before Christmas.
If the United States decides to respond with air strikes on Iranian territory, Tehran will have the opportunity to try to close the Strait of Hormuz or to liquidate oil supplies from Saudi Arabia and the UAE from the Persian Gulf. Now Iran continues to develop, improve and use a number of military capabilities that will allow it to target the military assets of the United States and its allies in the region and disrupt movement through the Strait of Hormuz.
These systems include ballistic missiles, sea mines, submarines and torpedoes, anti-ship cruise missiles, anti-ship ballistic missiles and air defense systems. Using these systems will help prevent the flow of oil through the Persian Gulf for a long period of time. Iran does not have to sink every ship, it is just looking for a compromise between risk and profit.
The Strait of Hormuz is crucial for the global economy. 20 million barrels of oil – 20% of world oil supplies – cross it daily. Only exports from Saudi Arabia and the UAE provide 10% of global oil consumption. As a result of major shocks in the oil market, global supply has always fallen by 6-8% in a relatively short time, usually in a few months. This was enough to cause a global recession in 90, or even 30 days.
The shock of oil prices in 2008, before the Great Recession, and in 2011 against the backdrop of the Arab Spring showed that oil crises could still bring down the global economy. The oil shock caused by the Persian Gulf war was no exception to the rule, becoming the beginning of a world recession. Closing the Strait of Hormuz for even a month or two is enough to bring the global economy to a deep recession, like the oil shock caused by the Iran-Iraq war of 1979.
Gulf oil cannot be replaced by other sources. U.S. shales certainly provide a buffer, but shale oil production will peak in early 2020 if the number of rigs continues to fall, as has been happening for almost a year. American shale oil production can be restored at higher oil prices, but it will take from 6 to 8 months to add another 1 million barrels.
The United States could not compensate for the loss of more than 2-3 million barrels per day, regardless of oil prices.
In addition, outside the United States there are no huge capacities. Since 2005, the United States itself has been responsible for three-quarters of the growth in global oil supplies. OPEC supplies remained virtually unchanged; reserves are concentrated in Saudi Arabia and the Persian Gulf countries, precisely those that were affected by the closure of the Strait of Hormuz.
Production losses can be offset by strategic reserves around the world. The strategic reserves of key countries are 2 billion barrels of oil, which would be enough for 3 months, if used at 20 million barrels per day. Moreover, oil prices will rise sharply even before stocks are depleted. Strategic reserves are unlikely to prevent a market panic for a month or two.
And the Iranians know this. Therefore, Tehran intends to put an obstacle in front of Washington, because it will either have to passively support repeated attacks on Saudi facilities, or translate the conflict into a clear war that will result in a global economic crisis, or allow the Iranians to export enough oil to finance basic public services.
If Washington was guided by this simple logic, a deal would have to be struck. The Iranians are under tremendous pressure: a blow to Abkaik clearly speaks of this. An attack on the country’s most important infrastructure can cause war. And Tehran would go for it out of despair.
In addition, Iran could strike at military facilities or large civilian centers and cause serious damage. He hit only the refinery, and then, when the company was almost no people. This suggests that Iran does not want war.
Also, the attack on Abkaik was prepared not by evil aggressors, but by a professional team, which carefully weighed the pros and cons.
These 3 factors suggest that Iran is ready to make a deal, and pretty quickly. However, the blows clearly indicate that Tehran does not want to give up.
But against the backdrop of these restrictions, a deal seems more affordable.
How can the Trump administration react? On September 25, Secretary of State Pompeo presented the official version: the more Iran shows aggression, the stronger our pressure will be. Thus, events are inexorably moving toward a military conflict between Iran and the United States.
And it’s hard to say how it will end. The United States is unlikely to launch a ground invasion of Iran – therefore, everything will be limited to airstrikes. On the other hand, only one aircraft will not prevent Iran from striking low-speed oil tankers.
Of course, this is not the only outcome. Today, trump can declare success in a campaign of maximum pressure on Iran. He has impressive cards in his hands. Everything suggests that he can make a much better deal than President Barack Obama. Does the White House use this opportunity? Probably not. But the president still has 60 days to the point of no return.
This article is written and prepared by our foreign editors writing for OBSERVATORY NEWS from different countries around the world – material edited and published by OBSERVATORY staff in our newsroom.
OBSERVATORY — Breaking news source, real-time coverage of the world’s events, life, politics, money, business, finance, economy, markets, war and conflict zones.
Contact us: email@example.com
We are OBSERVATORY — the only funding and support we get from people – we are categorically not funded by any political party, any government somewhere or from any grouping that supports certain interests – the only support that makes OBSERVATORY possible came from you.