Iran and Oil Price Risk

Today's UN Security Council vote on a further round of sanctions on Iran merits attention. While the U.S. and its key allies were able to get a somewhat diluted slate of new sanctions passed, the vote may be as notable for the "nays" cast by Brazil and Turkey as for the "ayes" it received from Russia and China, along with Lebanon's abstention. It looks like Iran has astutely leveraged the fraying of traditional alignments following the global economic shake-up of the last two years. The significant recent deterioration of Israel's image and standing probably played a backstage role, as well. It's a toss-up whether this new configuration makes an eventual confrontation over Iran's nuclear program more or less inevitable than previously.

Tensions over Iran's nuclear program have been moderated somewhat by ongoing diplomatic initiatives that have fragmented into parallel conversations between Iran and the US plus its closest European allies, Iran and its neighbors, and Iran and various emerging and non-aligned countries. However, jaw-jaw aside, Iran is either moving inexorably towards a nuclear weapons and delivery capability or putting on a pretty convincing Potemkin show of this for its own inscrutable reasons, reminiscent of Saddam Hussein's WMD sham of a few years ago. Either way, this still looks like the biggest unresolved political risk hanging over global oil markets, even if they're presently too distracted by the turmoil in currency and stock markets and the wave of offshore oil exploration bans emanating from the Gulf Coast leak to pay much attention to the risk of conflict.

This dance has been going on for years, but important elements have changed recently in ways that might alter calculations of the risks of a military strike by Israel--or anyone else--on Iran's facilities, relative to the risks of allowing Iran to produce a warhead and match it to its increasingly sophisticated missile technology. Last week's fiasco involving Israel's interdiction of a convoy of ships carrying aid to Gaza looms large, for several reasons. First, it has further isolated Israel from traditionally sympathetic countries in Europe and elsewhere. That could be crucial in the aftermath of any Israeli moves against Iran. In addition, Israel's action alienated low-key regional ally Turkey, not least because the convoy sailed from Istanbul and most of the fatalities were Turks. When Iran, Turkey and Russia meet to discuss regional security, it's a pretty clear sign that things are changing in noteworthy ways. (The slow drift of Turkey out of the western orbit after years of being rebuffed for EU membership may go down as one of the biggest missed opportunities of the post-Cold War era.)

As another Washington Post article indicated this morning, the latest sanctions might bite a little harder but could leave Iran's leaders feeling they have come out ahead in this round. If so, they won't be deterred to any greater extent from pursuing their oft-denied but widely-assumed nuclear aims. Meanwhile Israel has even less scope than before to launch an Osirak-style attack without facing a crippling response from its friends. As I noted last fall, the window of opportunity for resolving this slow-burn crisis without risking intolerable consequences for oil prices will not remain open indefinitely.