PRESIDENT OBAMA took a crucial step Friday toward tighter economic sanctions on Iran: He determined that the United States could put the final phase of the sanctions into effect as scheduled at the end of June without causing economic harm to European and Asian allies. The final phase effectively bars foreign financial institutions from operating in the United States unless they cease petroleum-related transactions with the Iranian central bank.
Countries can insulate their banks from the sanctions by significantly reducing purchases of Iranian oil. Ten European countries and Japan have done so, costing Iran roughly 300,000 barrels per day in sales. Europe’s own embargo on Iranian oil starts at the same time as the U.S. sanctions. Taken together, the measures will cost Iran hundreds of millions of dollars in revenue and, it is hoped, force the Islamic Republic to abandon its nuclear program.
Of course, Iran hopes that the sanctions will drive up world oil prices so much that the United States and other oil-importing Western democracies cry “uncle” before Tehran does. That makes it reasonable for President Obama and other allied leaders such as President Nicolas Sarkozy of France and Prime Minister David Cameron of Britain to consider drawing on their strategic petroleum stockpiles.
No doubt Mr. Obama and his colleagues are contemplating such action not only to thwart Iran but also to head off voter anger over high fuel prices. Given the need to sustain domestic political support for a vital national-security initiative, that’s not automatically illegitimate.
Still, the president should think twice before dipping into the backup, currently 700 million barrels, that Congress created in 1975 to protect against a “severe energy supply interruption.” Though the average U.S. price of regular unleaded gasoline is almost $4 per gallon and is likely to rise along with Middle East tensions, that does not yet equate with the Persian Gulf War or Hurricane Katrina, to name two past emergencies in which presidents used the reserve.
As the president’s statement noted, much of the recent tightness in global oil markets is due to what you might call “normal” political unrest in Yemen, Nigeria and South Sudan, as well as the Iran situation. It’s far from clear that there is or will be any supply interruption, let alone a “severe” one, in the United States because of the Iran sanctions. Domestic production is rising. Saudi Arabia’s oil minister says that his country’s production capacity is 12.5 million barrels per day, “way beyond current levels demanded, and a reliable buffer against any temporary loss of production.”
Yes, gas is expensive. High oil prices threaten to exacerbate Europe’s economic plight, thus retarding the global recovery. But there are costs to tapping the strategic reserve more often than absolutely necessary. If you use stored-up oil now, you have to replace it later — which artificially drives up oil prices at that point. The oil markets are volatile enough already; why add the gyrations of U.S. gas prices to the list of imponderables on which speculators trade?
The West’s struggle with Iran is a long-term contest, and there may be a real crisis before it’s over. Better to save this weapon until then.