For the past few weeks, Iran has tweaked the noses of world powers — especially the United States — as it continues its pursuit of nuclear power. Iran insists its nuclear program is strictly for peaceful purposes. The U.S. and its European allies worry that Iran plans on developing nuclear weapons.
It's not only nuclear weapons, however, that the world is worried about. Iran has another weapon at its disposal: oil. Iran's "oil weapon" may not be as worrisome as a nuclear weapon, but experts say it poses a very real and immediate threat to the world economy.
Iran is the world's fourth-largest oil producer. Every day, it exports more than two million barrels of crude — twice as much as Iraq. Any move by Iran to cut off or curtail its oil exports would quickly translate into higher oil prices worldwide.
"Oil markets are already reacting," says Ian Bremmer, president of the Eurasia Group consulting firm. "We've already seen that Iran is willing to talk about using oil as a weapon, and I think the markets are taking that threat seriously."
Analysts say that should Iran act on its threat to unleash its "oil weapon," oil prices could skyrocket to $100 a barrel, or about $4 a gallon at the pumps. While that is clearly not an appealing prospect, neither is the prospect of a nuclear-armed Iran, say U.S. officials and lawmakers. On the on CBS political talk show Face the Nation, Sen. John McCain (R-AZ) put it plainly: "If the price of oil has to go up, then it's a consequence we would have to suffer."
The question, analysts say, is whether such a price hike would be short-lived or long term. The current state of the global oil market gives Iran a stronger hand. These days, countries like China and India are thirsty for oil, and there isn't a lot of surplus oil sloshing around on the global market.
In the past, the United States could rely on North Sea oil, for instance, to make up for shortfalls. Today, it must turn to nations like Venezuela and Nigeria. The recent hurricanes in the Gulf of Mexico have also hurt oil production. "Most of these supply situations are fraught with some kind of peril," says Frank Verrastro, head of the energy program at the Center for Strategic and International Studies.
But would Iran really follow through on its threat to unleash its "oil weapon?" After all, the government of Iran derives half of its revenue, and 80 percent of its hard currency, from oil sales. By cutting off those sales, wouldn't Iran be committing economic suicide?
Most experts say a complete cutoff of Iranian oil is unlikely — but "there are a lot of things that the Iranians can do short of cutting off oil which are going to impact gas prices in the United States," says Ian Bremmer of the Eurasia Group. For instance, he says, Iran could threaten the movement of oil tankers in the Straits of Hormuz, a vital waterway that it controls.
"The Iranians can ramp this up or back as they're pressed," says Bremmer. "And thus far, they have shown every inclination to do precisely that."