SANCTIONS

The prospect of messianic fanatic mullahs acquiring nuclear weapons presents an existential danger to entire swaths of the world and puts millions of lives at risk. Clearly the Obama administration understands this and has chosen to act at this juncture in the most effective manner short of a military or surgical air strike, with all its potential ramifications to the stability of the Middle East, not to speak of the world itself.

The policy that will have maximum impact on the Iranian regime is to cut off the billions of oil revenues, their instrument of power and moral corruption, enabling the brutal dominance over an otherwise cowered populace that would otherwise celebrate the departure of the mullahs and their ilk from their seats of draconian power.

The greatest impact can be realized by crippling Iran's oil revenues through a worldwide and effective embargo on its oil exports, Iran's main source of income, reaping more than $73 billion in 2010 alone and covering more than 50% of its national budget. Combining such an embargo along with extensive sanctions -- both those already in place, and those about to be instituted such as blacklisting Iran's National Bank and all banks or institutions who transact with it -- would render a crippling blow to the ability of the Iranian regime to keep their largely restive populace under their tyrannical control.

In its most wide ranging effort to date the Obama administration is sending State Department officials and interlocutors to visit and meet with officials from various countries including Saudi Arabia in order to assure the availability of additional oil supplies to cover any shortfall in world markets from an effective Iranian embargo. This in spite of, or because of, reports coming out of OPEC's meeting earlier this month that Iran's oil minister Rostam Ghasaemi reported that Saudi Arabia and Iran had "reached a deal that the Saudis wouldn't raise their oil production to make up for Iran's market share in case U.S. and Europe sanction Iran's oil." The Administrations objectives were clearly highlighted by the State Department's spokesoperson Victoria Nuland's comments earlier this week, "encouraging all our partners to do what they can to wean themselves from Iranian Oil", such as discussions with Japanese officialdom urging Japan to reduce it reliance on Iranian oil, now covering some 10% of their oil import needs.

Most significantly is the prospective cooperation of France and Britain toward cutting off all Iranian oil imports together with the 27 European Union Countries. Such an embargo covering some 450,000 barrels/day, or near 25 percent of Iran's daily loadings, would have enormous financial and symbolic impact on the Iranian regime.

Yet there is one oily fly in this ointment. And that is the perceived and misguided wisdom that any interruption in the flow of Iranian oil would cause enormous damage to the world's economy. It is a singular canard propagated in large measure by Iran itself.

It is a misnomer effectively exploited by crude oil traders and too oft manipulators, together with a compliant press, making this perception an important driver of oil prices, while giving the Iranians ever higher returns for their oil exports and delivering enormous profits to the oil speculators. Yesterday alone when it became generally known that a meeting was being held in Rome between the U.S., EU nations and their Asia-Pacific allies, vowing to bring increased pressure on Iran to abandon its nuclear program, the speculators had a field day. The price of oil quoted on the New York Mercantile Exchange surged by 3.4 percent or $3.19 per barrel, and in the one way momentum of these events, another near $1.50 the following day. Other than the oil traders, the oil producers and ironically Iran itself, no one benefits by these pricing distortions, and worse they place the economic recovery at great risk.

Yet to countervene the speculators and to put at ease the 'built in' anxieties elicited whenever there is even the vaguest concern about oil supplies, the U.S. has in its arsenal a mighty weapon. It is the 750 million barrels that the government has in its Strategic Petroleum Reserve. It is an instrument that can calm these excitable markets if used effectively.

All that needs be done is for the government to announce a policy that any unusual price movements due to Iranian oil embargo policies will be met with a release from the Strategic Petroleum Reserve. Just the broadcast of such a policy will have an enormous becalming effect on the markets. It will take away from the oil traders the surety of a one way bet of ever higher prices. It will deny the Iranians greater income for what they are able to export. Most importantly, it may very well achieve the Administration and much of the world's shared objective of either bringing the Iranian nuclear program to an end or even achieving a change in regime. And this without a major economic disruption or a spike in oil prices.

Can one think of a better strategic function for our Strategic Petroleum Reserve?

First published in HuffingtonPost.com.

AUTHOR
Raymond J. Learsy is the author of a new book, Oil and Finance: The Epic Corruption 2006-2010, and the updated version of Over a Barrel: Breaking Oil’s Grip on Our Future. Currently, he is a member of the Woodrow Wilson International Center for Scholars. Learsy has been featured in the National Review Online, the New York Times, the Pipeline and Gas Journal, the Huffington Post and on CNBC.