Troubled Waters for the World’s Oil Supply

Oil refinery.
Oil refinery.

In Hot Topics posts, UConn experts comment on current events and issues unfolding in the news.

Increasingly heated dialogue between Iran and the United States over Iran’s nuclear ambitions has stoked fears that Iran will temporarily cut off access to the Strait of Hormuz and with it up to one-fifth of the world’s oil supply.

Oksan Bayulgen, a UConn assistant professor of political science, is keeping a close eye on the situation as it unfolds. Bayulgen specializes in research on international relations, political economy, and the politics of oil. Her work includes several peer-reviewed articles on oil wealth, and the book Foreign Investment and Political Regimes: The Oil Sector in Azerbaijan, Russia, and Norway.

Bayulgen says that, given the at-times unpredictable nature of the Iranian diplomacy, it is possible that Iran may actually carry out its threats to close the strait, if it becomes desperate in the face of international economic sanctions aimed at preventing the country from developing nuclear capability. She notes that even the threat to close the strait has led oil prices to increase by 2 percent. If threatened international sanctions to disrupt Iran’s oil exports are implemented, she anticipates that oil prices may further increase by as much as $40 per barrel. Even though increased prices for oil would have a worldwide impact, Iran’s own economy would be particularly badly affected by sanctions on its oil exports.

When asked how seriously Iran’s threats should be taken, Bayulgen notes that historically Iran has refrained from closing off the strait completely. Even in times of conflict, it blocked only some traffic – for example, during the Iran-Iraq war – in order to avoid unwanted repercussions on its economy. Bayulgen says, “closing the strait would first and foremost be detrimental to Iran’s own economic interests. It would deprive Iran of vital oil revenue, which is clearly the backbone of the Iranian economy.”

In fact, she says, neither the United States nor Iran would benefit from disruption to the oil supply through the Strait of Hormuz; and if either the United States or Iran can be convinced to back down from its threatening stance, there could be a peaceful resolution to the threat.

However, as the threats escalate, she adds, the chances of this happening are receding.

Bayulgen says that in spite of the serious economic sanctions that the worldwide community is using to threaten Iran, “It seems like Iran is not willing to give up its nuclear ambitions, so I’m not sure how much room is left for the Iranians to back away from this brinkmanship.”

A temporary solution could result if Iran allowed the UN to monitor its nuclear program, she says, which would alleviate some concerns in the West.

In the United States, there is still much debate about how to deal with Iranian threats. Bayulgen notes that a competitive Republican Primary has led many presidential candidates to take hard-line positions against Iran.

In addition, she says, if rising oil prices counteract signs of an economic recovery, that could spell problems for President Obama. “I can’t imagine that the Obama administration wants this conflict,” Bayulgen says, “but at the same time, Obama cannot easily back down or give in too much to Iranian demands in fear that it would show him weak in foreign policy on the eve of elections.”

Members of the media may contact Bayulgen via email: