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ISIS on Iran Nuke: Low Risk in 2012

February 14, 2012 | 6:02pm
The Institute for Science and International Security published “Preventing Iran from getting Nuclear Weapons: Constraining its future options” by David Albright, Paul Brannan, Andrea Stricker, and Christina Walrond. The report concludes, “In 2012, the probability of all of the scenarios occurring is judged to be low. This can be interpreted to mean that Iran is currently in a poor position to build nuclear weapons covertly and is thus unlikely to attempt to do so this year.” The following is the summary from the report.
 
Without past negotiated outcomes, international pressure, sanctions, and intelligence operations, Iran would likely have nuclear weapons by now. Iran has proven vulnerable to international pressure. It now faces several inhibitions against building nuclear weapons, not least of which is fear of a military strike by Israel and perhaps others if it “breaks out” by egregiously violating its commitments under the Nuclear Non-Proliferation Treaty (NPT) and moves to produce highly enriched uranium (HEU) for nuclear weapons.
 
However, threats of pre-emptive military strikes alone have been unproductive in extending this inhibition against building nuclear weapons. Instead, these threats have led Iran to better protect its nuclear facilities and activities and allowed it to make false comparisons to the case of Iraq, undermining support in much of the world for increasing pressure internationally out of fear that pressure would lead to a preventive attack.
 
Iran is already capable of making weapon-grade uranium and a crude nuclear explosive device. Nonetheless, Iran is unlikely to break out in 2012, in large part because it will remain deterred from doing so and limited in its options for quickly making enough weapon-grade uranium. Iran continues to be subject to a complex set of international actions that constrain its nuclear options.
 
Faced with the difficulties and risks of military options and the marginal benefits of negotiations during the last several years, an alternative third option, born out of frustration and slow, patient work, has developed. It builds on United Nations Security Council (UNSC) resolutions that delegitimize certain aspects of Iran’s nuclear programs. However, it goes beyond these efforts by increasing the chance of detecting secret nuclear activities and heightening barriers against Iran achieving its nuclear objectives. Its goal is to create and implement measures to delay, thwart, and deter Iran’s acquisition of nuclear capabilities. This strategy is having some significant successes, including delaying Iran’s ability to make nuclear weapons and creating significant deterrence against it building nuclear weapons today. Absent a meaningful negotiated settlement, which remains the best way to resolve the nuclear crisis with Iran, its longer-term prognosis is difficult to predict without broader application.
 
These methods help explain Iran’s delayed progress in developing its nuclear weapons capabilities. However, they have not completely stopped Iran from making progress toward that goal. Iran continues to make both 3.5 and 19.75 percent low enriched uranium (LEU) and it has said it will soon triple its rate of 19.75 percent LEU production with the installation of IR-1 centrifuges at the subterranean Fordow enrichment site. Enrichment at this site started in late 2011 or early 2012.
 
This project has examined a wide range of future options that Iran may use during the next several years to build nuclear weapons (see table 2). The four that emerged as showing the highest probability of occurring in the period from now through 2015 are:
 
  • Dash at a Declared Enrichment Site
  • Dash at a Covert Enrichment Site
  • Cheating in Plain Sight
  • A Parallel Program
 
In all cases ISIS evaluated, each potential nuclear future is not inevitable. International actions may delay or prevent them. Iran may decide that the potential costs are too high and may choose not to pursue any of them. Despite the existing constraints, however, Iran may decide that at some point obtaining nuclear weapons is worth the risks.
 
In 2012, the probability of all of the scenarios occurring is judged to be low. This can be interpreted to mean that Iran is currently in a poor position to build nuclear weapons covertly and is thus unlikely to attempt to do so this year. In 2013 and onward, the probabilities of the four futures mentioned above occurring begin to increase toward a medium likelihood.
 
None of the probabilities of the nuclear futures evaluated by ISIS is judged as being high; many remain low. These judgments reflect technical challenges Iran will face, international actions that will continue to constrain particular nuclear futures, and the extent of pressure on Iran today and that is expected to be applied in the future to deter Iran from building nuclear weapons.
 
However, low-probability events should not be interpreted in the context of this study as not meriting concern. The assigned probabilities during the next several years provide no reason for complacency. Given the consequences of a nuclear armed Iran, even options with low probabilities of occurring require action designed to keep them low. Similarly, since an Iran with nuclear weapons would be a high impact event, futures with a low probability, or those that are unlikely to occur, are still highly important and could have a severe impact. Thus, working to lower their probability of occurrence is important, as is developing contingency plans in case they do occur. In this report, the medium probability futures are the top priorities, and they require extra effort to reduce their likelihood of occurring.
 
According to this analysis, the options that Iran would tend to favor involve developing and deploying advanced centrifuges, continuing to find ways to produce higher enriched uranium in greater quantities under a civilian cover, building confidence in an ability to build covert sites, evading answering the IAEA’s questions about past nuclear weaponization activities, and better protecting nuclear sites against military strikes. The task is to prevent Iran from succeeding by lowering the probabilities that Iran could achieve any of these nuclear futures while keeping it within the constraints of the NPT.
 
This report shows that Iran’s capability to build nuclear weapons is constrained. However, this capability nevertheless increases with time, and Iran could develop more options to acquire nuclear weapons in the coming years unless it is further constrained or the probabilities of these futures occurring are lowered further. Additional constraints can emerge through negotiations, but these are more likely if a range of methods are utilized along the way to slow Iran’s progress.
 
Any pragmatic future strategy must inhibit Iran’s nuclear progress and pressure it into changing course while offering it an alternative, more prosperous pathway forward. But as we seek and engage in negotiations for a long-term solution, the key goal must be, at the same time, to implement additional measures to delay, thwart, and deter Iran’s acquisition of nuclear capabilities and inhibit its ability to break out. In particular, such a strategy should focus on several key priorities:
 
  • More effective legal mechanisms to stop Iran from acquiring key goods for its nuclear programs. A priority is China’s domestic enforcement of sanctions and trade controls;
  • Better detection of Iran’s illicit procurement efforts and broader enforcement of legal mechanisms worldwide;
  • Increased efforts in countries of transit concern to prevent Iran from transshipping banned goods;
  • Stepped up operations to detect clandestine Iranian nuclear activities, including heightened intelligence operations inside Iran aimed at detecting secret nuclear sites and activities and encouraging defections of nuclear program “insiders”;
  • Covert action to slow Iran’s nuclear program, particularly if the conflict transforms into a protracted Cold War style stand-off between Iran and several members of the international community; and,
  • Increased economic and financial sanctions aimed at augmenting pressure, combined with an effort to displace Iranian oil exports.
 
A parallel strategy alongside pressure is to seek interim negotiated constraints on Iran’s nuclear program that serve to reduce concerns about an Iranian breakout or dash to the bomb. Iran can receive tangible benefits in return for reducing its options to build nuclear weapons quickly and in secret. All sides could build valuable trust, something currently in short supply.
 
Table 4 evaluates a set of interim measures. The measures are ranked on their ability on an interim basis to inhibit breakout to weapons, improve detection of secret nuclear activities and sites, and prevent further development, diffusion, and protection of centrifuge assets. The table shows that none of the measures are effective at accomplishing all three goals. As these are interim measures, the P5+1 should focus on the strategies that impact Iran’s ability to break out in the short term, deploy advanced centrifuges, and to diffuse and better protect its centrifuge assets. The priority measures based on the ranking in are:
 
  • Cap all enrichment at the level of five percent;
  • Freeze centrifuge installation at Qom (limit of two IR-1 centrifuge cascades);
  • Limit the number of advanced centrifuges enriching uranium to fewer than 500 and limit deployment exclusively to the Natanz Pilot Fuel Enrichment Plant (PFEP); and
  • Deposit all 19.75 percent LEU overseas.
 
Based on the public discussion, the following summarizes the most commonly discussed incentives in the context of an interim agreement:
 
  • Provision of 19.75 percent LEU fuel for TRR, starting within one year of date of agreement;
  • Provision of LEU targets for medical isotope production;
  • Provision of medical isotopes of the type that the TRR would produce; and
  • Commitment by P5+1 not to seek new U.N. Security Council sanctions for a defined period of time, contingent on implementation of agreement.
 
At the same time, the United States and its allies should reject any Iranian effort to trade interim measures for a reduction in sanctions or commitments not to add national or regional sanctions. In addition, Iran sought in an agreeemnt negotiated by Turkey, Brazil, and Iran to establish an essentially unbridled right to uranium enrichment. But the P5+1 is unlikely to acknowledge Iran’s right to uranium enrichment under the Nuclear Non-Proliferation Treaty without a verified assurance that it is in compliance with this treaty, something lacking today. Iran needs to first satisfy the many concerns raised on an on-going basis by the IAEA about Iran’s nuclear efforts.
 
Significant sanctions relief and how to ensure Iran is in compliance with the NPT are the proper subject of long-term negotiations.
 
The best remedy is a negotiated long-term resolution of the nuclear issues. Although Iran remains difficult to engage in a comprehensive negotiated solution, the shape of a future solution to the Iranian nuclear crisis is important to consider now. Several earlier attempts to engage Iran in a long-term solution have laid the basis for an acceptable outcome including illuminating creative diplomatic methods of achieving a compromise. The first was the “freeze for freeze” proposal, whereby Iran would have agreed to a suspension of its enrichment program in return for a freeze in additional U.N. sanctions. More recently, Russia proposed a step-wise resolution to the issue, although it did not release its proposal publicly.
 
These earlier efforts have created a sound foundation to build on. One lesson is that because the situation is so complicated, the negotiating goal should be a framework agreement that can incorporate a series of stages where each step includes concessions by Iran matched with incentives or concessions by the P5+1. (The P5+1 is the main negotiating partner of Iran composed of the five permanent members of the Security Council plus Germany.)
This report discusses the essential elements of such an agreement. Table 5 in the Appendices lists ISIS rough proposal for a five stage framework agreement with Iran. The five stages in brief are:
 
1. Updated, verified “freeze for freeze” agreement
2. Iran coming clean in a verifiable manner about its past and possible on-going nuclear weaponization activities and accomplishments and receiving significant sanctions relief
3. Intensive International Atomic Energy Agency (IAEA) verification, temporary suspension of sensitive Iranian nuclear programs, and provisional suspension of U.N. Security Council sanctions
4. IAEA certification of absence of undeclared nuclear activities, resumption of Iran’s nuclear program, provision of major incentives package, and end of U.S. sanctions
5. Growth of Iran’s civil nuclear program and end of all remaining sanctions
 
Absent a negotiated outcome, the international community must be prepared to signal for years if necessary that an Iran that seeks nuclear weapons will never be integrated. It must not acquiesce to Iran’s current trajectory or give up on sanctions and other measures while accepting the current level of ambiguity over Iran’s nuclear weapons aspirations. Ultimately, a negotiated solution remains the best way to resolve the nuclear crisis with Iran, and increased pressure offers the best hope of convincing Iran to undertake successful negotiations.
 
This report builds on a series of ISIS reports, research, and workshops during the last year. Background information and reports are available on the ISIS web site at www.isis-online.org.
 
 
Tags: Nuclear Program, Reports
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Gallup: Iranians Feel Sanctions Bite

February 7, 2012 | 7:28pm
WASHINGTON, D.C. -- As the U.S. orders more economic sanctions against Iran, a new Gallup poll finds nearly two-thirds of Iranians think recent sanctions that the United Nations, the U.S., and Western Europe have already imposed will hurt the livelihoods of the country's residents "a great deal" (27%) or "somewhat" (38%).
 
 

Iranians' approval of other countries' leadership

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The European Union on Jan. 23 banned Iranian oil exports and froze the assets of Iran's central bank in the EU to pressure the government over its suspected nuclear weapons program. That move followed the Dec. 31 signing of a U.S. law imposing new sanctions targeting Iran's central bank. President Barack Obama went a step further Sunday, signing an executive order that freezes Iranian state assets in the U.S.
 

In the face of mounting financial pressure, the value of the Iranian rial has dropped sharply in recent weeks, and prices of food, consumer goods, and utilities have spiraled. Almost half of Iranians (48%) now say there were times in the past year when they did not have enough money to buy food their families needed, more than tripling the 15% who said so in 2005. Forty-eight percent also currently report there were times in the past year when they didn't have enough money to provide adequate housing for themselves or their families, up from 29% in 2005.

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

These economic ramifications may also be affecting Iranians' daily mood. A majority (55%) say they experienced worry for much of the previous day, up from 38% when Gallup last surveyed in Iran in February-March 2011. Similarly, almost half of Iranians (47%) say they felt angry during a lot of the previous day, compared with slightly more than one-third (35%) a year ago.

 

 
 
 
 
Implications
In pursuing tighter economic sanctions against Iran, U.S. officials point to evidence that they have slowed the progress of Tehran's suspected nuclear program. However, the effect of sanctions on day-to-day life in Iran is also a major concern for U.S. leaders, who seek to engage with ordinary Iranians even as they attempt to make things more difficult for the country's leaders. In addition to the possible humanitarian consequences of economic sanctions, experts cite the possibility that any hardship they create may intensify anti-Western sentiment in Iran and strengthen support for the current regime.
 
Iranians' favorability toward Western leaders remains low. Eight percent say they approve of U.S. leadership, 7% approve of U.K. leadership, and 13% approve of German leadership, results similar to those found in early 2011. Such figures demonstrate that Iranians' protests against their own leadership should not be construed as support for the West -- and that Western leaders need to monitor the unintended effects sanctions may have on Iranians' lives.
 
Click here to view the poll on the Gallup website.
 
 
 
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U.S. Sanctions Central Bank

February 6, 2012 | 1:35pm

The following is an excerpt of President Obama’s statement on new U.S. sanctions on Iran’s Central Bank.

I have determined that additional sanctions are warranted, particularly in light of the deceptive practices of the Central Bank of Iran and other Iranian banks to conceal transactions of sanctioned parties, the deficiencies in Iran's anti-money laundering regime and the weaknesses in its implementation, and the continuing and unacceptable risk posed to the international
financial system by Iran's activities…
 
The order blocks the property and interests in property of  the following:
The Government of Iran, including the Central Bank of Iran; Any Iranian financial institution, including the Central Bank of Iran; and Persons determined by the Secretary of the Treasury,
in consultation with the Secretary of State, to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to the order.
 
FACT SHEET: NEW SANCTIONS ON IRAN
 
WASHINGTON - Today, President Obama signed an Executive Order (E.O.) that takes a number of actions in furtherance of the Administration’s Iran sanctions program, including measures to implement section 1245 of the National Defense Authorization Act (NDAA). Among other things, the E.O. freezes all property of the Central Bank of Iran and all other Iranian financial institutions, as well as all property of the Government of Iran, further tightening the already broad-based and stringent U.S. sanctions on Iran.
 
These actions underscore the Administration’s resolve to hold the Iranian regime accountable for its failure to meet its international obligations. Iran now faces an unprecedented level of pressure due to intensified sanctions applied by the United States and complementary actions by many others around the world. The new E.O. issued today reemphasizes this Administration’s message to the Government of Iran – it will face ever-increasing economic and diplomatic pressure until it addresses the international community’s well-founded and well-documented concerns regarding the nature of its nuclear program.
 
Additional information describing the implementation of section 1245 of the NDAA pursuant to the authorities delegated under this E.O. will be made available in the near term.
 
Sanctions under the New Executive Order:
 
On February 5, President Obama signed a new E.O. effective at 12:01 a.m. on February 6, that blocks (i.e., “freezes”) all property of the Government of Iran as well as all property of Iranian financial institutions, including the Central Bank of Iran.
 
1. The E.O. blocks all property and interests in property of the Government of Iran, the Central Bank of Iran and all Iranian financial institutions (regardless of whether the financial institution is part of the Government of Iran) that are in the United States, that come within the United States, or that come within the possession or control of U.S. persons. Previously, U.S. persons were required to “reject,” rather than “block,” Iranian transactions.
 
  • Under the order, the Government of Iran, the Central Bank of Iran, and all Iranian financial institutions are now blocked (i.e. their assets within the jurisdiction of U.S. persons are frozen).
 
  • The U.S. sanctions in place since 1995 have required most transactions involving the Government of Iran, the Central Bank of Iran and all Iranian financial institutions to be rejected – that is, they could not pass through the U.S. financial system, but instead were turned back. Under the new E.O., transactions involving the Government of Iran, the Central Bank of Iran and all Iranian financial institutions that previously would have been rejected will now be blocked.
 
  • All entities that meet the existing definition of “Government of Iran,” such as Iranian ministries, state-owned entities and commercial firms owned or controlled by the Government of Iran, are blocked. This includes entities bearing the [IRAN] tag on the Treasury Department’s Office of Foreign Assets Control’s (OFAC) List of Specially Designated Nationals and Blocked Persons (SDN List). Transactions by U.S. persons involving such entities are now blocked unless exempt or otherwise authorized. OFAC will continue to update the SDN List and may add, delete, or edit existing entries as appropriate.
 
  • The E.O. does not change the sanctions that may be applied against foreign financial institutions engaging in arms-length transactions with certain Iranian financial institutions, including the Central Bank of Iran. Those foreign financial institutions remain at risk of U.S. sanctions if they engage in certain significant financial transactions with the Central Bank of Iran or certain other designated Iranian financial institutions pursuant to the NDAA, or the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA).
 
2. Treasury is issuing general licenses to maintain existing authorizations for certain transactions that advance U.S. foreign policy interests.
 
  • Persons who currently use general or specific licenses from OFAC for transactions involving the Government of Iran or Iranian financial institutions should consult the OFAC website for new general licenses and other information on whether those transactions remain authorized under the new E.O.
 
Delegations of Authority under the New Executive Order:
The E.O. also delegates other authorities provided in section 1245(d) of the NDAA.
 
  • The E.O. delegates a number of other authorities provided in section 1245(d) of the NDAA, primarily to the Departments of the Treasury and State.   These delegations will facilitate the implementation of section 1245 of the NDAA.
 
  • Additional information describing the implementation of the NDAA under these delegated authorities will be made available in the near term.

 

To see the Fact Sheet on the Treasury Department's website, click here. 

Click on the link to see the full text Executive Order - Blocking Property of the Government of Iran and Iranian Financial Institutions

Tags: Central Bank, Sanctions, U.S. Policy
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Four Scenarios if Iran Oil Disrupted

February 2, 2012 | 11:55pm

In an energy brief for the Council on Foreign Relations, Robert McNally outlines four possible scenarios in “Managing Oil Market Disruption in a Confrontation with Iran.”

SCENARIOS
 
1. Partial sanctions on Iran’s crude oil exports; Iran harasses gulf production and shipping
 
       This scenario appears to be taking shape, as the United States enacts sanctions on Iran’s central bank and the central banks of those who purchase Iranian crude (though President Barack Obama can waive them), the EU implements an embargo on imports from Iran, and Japan and South Korea come under more intense pressure to reduce their imports of Iranian crude. These sanctions are designed to prevent global oil price spikes by keeping Iran’s oil flowing, but still forcing Tehran to sell at a discount to a limited pool of remaining buyers, including China, India, and Turkey, each of which has an economic self-interest in extracting a below-market price.
 
        In this scenario, global oil supply should remain unaffected, leaving physical market fundamentals largely unchanged, although that does not mean that prices might not respond in foreseeable ways. Spreads between different crudes would change according to their quality or region—for example, Russian export prices would likely rise as Urals crude could substitute for embargoed Iranian crude in Europe, while prices for heavy crude grades sold in Asia would fall as displaced Iranian barrels were diverted east. Average global crude prices should remain generally unaffected, though they may come under some upward pressure as market participants bid oil off the market to increase inventories as a precaution. Iran could also retaliate by storing crude on tankers for a few months or even stopping some production, which would increase global oil prices. However, many analysts believe Iran would resist a long-term shutdown of production because it would result in permanent damage to Iran’s oil fields and recoverable reserves.
 
       Despite officials’ efforts to avoid a supply loss, Iran’s threats and the perceived possibility of future escalation have and likely will continue to lead nervous traders to add an Iran premium to global crude prices. Iran’s leaders probably understand that a full-blown conventional conflict with the United States would be extremely costly, if not catastrophic. Making good on their threat to retaliate to sanctions by attempting to close the Strait of Hormuz is unlikely, unless Iranian leadership believes the regime itself is endangered; in any case, analysts generally believe that Tehran could not close the strait for an extended period of time.
 
        Short of a major confrontation, Tehran could escalate by harassing tankers in the region with mines, small boats, and missiles in order to raise global prices and possibly induce Russia or China to intervene diplomatically on its behalf to relieve pressure. Iran could also orchestrate bombings in the southern Iraqi oil production system, which normally exports about 1.7 mb/d.8 In October and December 2011, bomb attacks against the Rumaila field in southern Iraq reduced oil production by a significant 0.6-0.7 mb/d, albeit for only a brief time.
 
        Policymakers can address these real and perceived risks in several ways. Security in southern Iraq, especially the Basra Oil Terminal and tanks and pipelines associated with it, should be bolstered and preparations to defend the gulf and protect the Strait of Hormuz stepped up. False threats or reports of disruptions should be countered swiftly, but officials will need to walk a fine line between reassuring the market on the one hand and unintentionally spooking it on the other. Policymakers should recognize that adding a third carrier strike group to the region or conducting a test sale from strategic stocks might have the unintended consequence of scaring rather than reassuring the market, depending on prior perceptions of risk. The utility of these or similar steps would need to be based on an appraisal of actual and perceived risks at the time they were being considered. So far, the Obama ad- ministration has astutely countered panicky press reports and belligerent Iranian threats with calm reassurance and factual denials.
 
       It is also important for the International Energy Agency to forge and project member unity about when and how to use reserves. There was an unusual amount of public dissent among IEA members during the June 2011 stock release that IEA leaders should not wish to repeat. The IEA reportedly has recently reviewed standing plans for a 14.4 mb/d strategic stock draw over one month.
 
2. Complete or nearly complete sanctions on Iran’s exports
 
        If the United States and the world went beyond planned, limited sanctions aimed at diverting and discounting Iranian exports and instead forced Iran to halt all or most of its exports, crude prices would likely jump considerably. Some analysts expect prices would reach old highs near $140.11
 
        As noted earlier, market participants doubt that OPEC can offset the loss of Iranian crude and still leave a spare supply cushion. Depending on how quickly Iran’s oil was lost, prices would have to rise to balance the market by forcing consumption to drop. The short-term price elasticity of oil demand is low and could become even lower in a crisis as commercial stockholders sought to hold on to or increase the amount of oil in storage out of fear of a prolonged disruption. OPEC production increases could help isolate Iran politically but they are unlikely to reassure markets about supply availability. If officials wanted to offset the loss of Iran’s supply, they could turn to IEA strategic stocks, which could easily flow at a 2.5 mb/d rate, roughly equal to Iran’s exports, for many months or quarters if necessary. China, India, Thailand, and other non-IEA countries could be offered access to strategic stocks to prevent hoarding.
 
3. An Israeli or U.S. attack on Iran’s nuclear facilities, but no oil infrastructure damage or disruption
 
        A military attack by Israel or the United States on Iran’s nuclear facilities would likely lead to a sud- den price shock (about $23 per barrel in the first days should Israel strike according to a Rapidan Group survey of market participants) as traders priced in risk of a wider conflict. Subsequent price behavior would depend on market participants’ expectations of the likelihood and duration of a con- flict that damaged gulf infrastructure or blocked the Strait of Hormuz.
 
        IEA and OPEC policymakers would need to closely monitor gulf oil production and shipping in the hours and days after military action, while reassuring market participants about their ability to respond to any disruption.
 
        Assuming military attacks were limited to Iran’s nuclear sites and associated air defense and lasted a short number of days, contingency planning for strategic stock releases could be conducted quietly to avoid signaling alarm. But if the conflict escalated to include attacks against economic or leadership targets, or Iranian attacks on tankers or onshore oil facilities, IEA contingency planning could be more visible and the United States could undertake a test sale from the Strategic Petroleum Reserve (SPR) to reassure the market about IEA’s capability to offset a possible major loss of supply. The actual crude price effects of various threat scenarios and mitigation options depend on many variables and are difficult to predict definitively; policymakers will likely only know their effectiveness after they have been tried.
Short of attempting to block the Strait of Hormuz, Iran has other options to disrupt crude and liquefied natural gas (LNG) production and transportation in the gulf region. Using proxies or its own forces, Tehran could orchestrate attacks against energy facilities in Iraq, as previously noted, or attack Saudi or Qatari crude and natural gas export facilities. While much of the focus is rightly on oil, it should not be overlooked that Qatar exports about one-third of global LNG supplies.
 
4. A regional conflict, including temporary closure of the Strait of Hormuz
 
       If a confrontation with Iran escalated to a regional military conflict that disrupted oil traffic through the Strait of Hormuz, it would be much harder for the IEA to handle, unless the disruption lasted on- ly a few days.12 About 17 mb/d flows through the Strait of Hormuz. Its closure, even for a short time, would dwarf any disruption in modern history in daily terms (see Figure 4). There may be some options to redirect some gulf exports away from the strait. Saudi Arabia could redirect 1.5 mb/d of production through unused capacity in the East-West pipeline to terminals near Yanbu, Saudi Arabia, which is on the Red Sea. A new United Arab Emirates pipeline, which bypasses the Strait of Hormuz, is expected to be ready to ship crude oil in the summer of 2012, and could provide an additional outlet for up to 1.5 mb/d.
 
        l just the fear of such a mammoth disruption will build a risk premium into crude oil prices and shift the market’s focus from OPEC’s spare capacity, which would be inaccessible in any case, to the strategic stocks held by IEA members.
 
        In the event of a major, prolonged disruption in Persian Gulf oil supplies, consumer countries trying to protect their economies from oil price spikes will face a menu of unappealing and inadequate options (see Figure 5 above). The most robust option would be a drawdown of strategic stocks, which the IEA claims could average 14.4 mb/d in the first month.13 On paper, the IEA could not cover the gross supply loss of 17 mb/d, but it could just about offset the net loss of about 14.5 mb/d, assuming 2.5 mb/d could be redirected through the East-West and Habshan-Fujairah pipelines.
 
        In practice, it is doubtful that 14.4 mb/d would be released in the first month for commercial, logistical, and policy reasons. In past releases, IEA countries delivered much less oil than was offered at first,14 as oil companies do not always take all the oil offered, depending on the price and each company’s market position. Moreover, a 14.4 mb/d release rate greatly exceeds any previous IEA strategic stock draws and, as with market estimates of OPEC’s spare capacity noted above, would likely be viewed by market participants with temporary skepticism. Additionally, releasing at maximum rates could signal panic that could incite increased private sector hoarding. Officials might want to conserve supplies for a potentially prolonged outage and other future contingencies. Furthermore, in the United States and some other IEA countries, the speed of strategic stock draws would be limited in the first month by bottlenecks in commercial inventories and previously scheduled import arrivals in the first week after the disruption. In those countries, strategic stock drawdowns into the commercial network cannot flow until the logistical system empties existing oil or the oil is diverted elsewhere.
 
        Despite these constraints, in the event of a worst-case regional conflict that results in a major supply loss, officials may well opt to “go big” by announcing a headline-grabbing 14.4 mb/d release. But it may be more credible to assure the market that the supply loss can and will be made up over time by higher OPEC production and from IEA stock releases. The most effective and credible way to limit and shorten the oil price spike will be for the military to quickly and convincingly reopen the strait to tanker traffic.
 
To read the full report, click here.
 
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Bipartisan Report Urges Talks and Threat of Force

February 1, 2012 | 12:22pm
      On Feb. 1,the Bipartisan Policy Center’s National Security Project released its fourth report on Iran’s nuclear development urging the United States to immediately adopt a triple-track strategy that simultaneously pursues diplomacy, tough sanctions and credible, visible preparations for military action on the part of the United States or Israel. According to the report, Meeting the Challenge: Stopping the Clock, co-authored by a 13-member bipartisan task force of prominent experts co-chaired by former Senator Chuck Robb and retired General Charles Wald, the best hope for a peaceful, diplomatic solution is for the U.S. to show its resolve in doing whatever is necessary to prevent a nuclear Iran, including taking military action.
 
     “If we are to gain international support for tougher economic sanctions and convince Iran to accept a diplomatic solution, we must ensure we have a visible, credible military option or that option will become the only alternative outcome,” said retired General Chuck Wald.
 
     “We supported President Obama’s diplomatic outreach and the stricter sanctions passed by Congress,” said former Senator Chuck Robb. “But the time has come for American leaders to openly discuss the potential consequences of this looming crisis and to take initial preparatory steps for military action against Iran as a last resort.”
 
     ”The president and his administration need to engage the American public in a frank discussion about the risks of a nuclear-capable Iran and exactly what it will take to prevent it,” said Dr. Michael Makovsky, the director of the report and BPC’s National Security Project. “It is precisely a public recognition of a viable military option that could reduce or even preclude its need,” he added. The report also recommends Congress hold hearings to discuss the viability, costs and dangers of military action. While the co-authors support additional tough sanctions, the report calls on Congress to regularly assess the effectiveness of such sanctions in stopping Iran’s nuclear program. Further, the report urges Congress to approve delivery of 200 GBU-31 bunker buster bombs and 3 KC-135 aerial refueling tankers to Israel to help bolster its capability to strike Iran’s nuclear installations, if necessary, and help convince the Iranians that a diplomatic solution serves its best interests.
 
    “Our report does not advocate an Israeli military strike,” emphasized Senator Robb. “But we believe a more credible Israeli threat can only increase the pressure on Iran to agree to shut down its nuclear weapons program peacefully.”
 
     If such pressure on Iran fails, the BPC recommends that the United States impose a quarantine on all refined petroleum imports into Iran. And if that fails, the report asserts that the U.S. military is capable of launching an effective surgical air strike against Iran’s nuclear program.
 
     “The risks of inaction are too high,” stressed General Wald. Despite 15 years of sanctions, a cyber attack on its nuclear facilities and other setbacks, Iran has doubled its uranium enrichment over the past two years, according to the International Atomic Energy Agency. Iran has also tested advanced centrifuges and continued its weaponization program. “Bold leadership is required.” Wald said. “We must stop Iran’s nuclear clock by using ‘all elements of U.S. power,’ as President Obama pledged to do in 2009.”
 

 

Tags: Reports
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The Islamists Are Coming

The Islamists Are Coming, edited by Robin Wright, surveys the rise of Islamist groups in the wake of the Arab Spring. Often lumped together, the more than 50 Islamist parties with millions of followers now constitute a whole new spectrum—separate from either militants or secular parties. They will shape the new order in the world’s most volatile region more than any other political bloc. Yet they have diverse goals and different constituencies. Sometimes they are even rivals.

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