The Iranian Oil Embargo

With the European Union agreeing to cut off oil imports from Iran starting next summer, the Iranians are threatening to strike back. The plan is to stop all oil exports to Europe immediately. At that point, Iran would sell its oil to China, India and Japan. It is a strong move by the Iranians if they actually carry out their threat of a cutoff. Some European countries will be hurt by an immediate cessation of oil before they have found substitute sources. On the other hand, such a move by Iran is likely to also lead to further steps by Europe against companies that do business with Iran or Iranian companies (like the Iranian central bank). That move might be sufficient to get refineries to cut off sales to Iran of gasoline. Strangely, Iran produces copious amounts of oil, but it has very inadequate refining capacity. A cutoff of gasoline imports to Iran would quickly grind the economy there to a halt.

So Europe and Iran are engaged in a massive game of chicken. At risk is whether or not Iran gets nuclear weapons. The American Congress has also passed legislation demanding sanctions against Iran. Maybe some day president Obama will actually recognize the threat of Iranian nukes and take time out from his campaign to work on this problem.