Oil price could soar if Iran curbs exports

A surge in oil prices last week to almost $70 a barrel on concerns about the restart of Iran's nuclear program only hints at what may lie ahead.

Prices could soar past $100 a barrel, experts say, if the UN Security Council authorizes trade sanctions against Iran, which the West accuses of trying to make nuclear bombs, and Iran curbs oil exports in retaliation. A sharp global economic slowdown could follow.

That's the dilemma the United States and Europe face as they decide whether to act. But Iran would also pay a hefty price if the petro-dollars that now represent 80 percent of export revenues are reduced, potentially stirring civil unrest in a nation with a 14 percent unemployment rate.

''They would shoot themselves in the foot," said Mustafa Alani, director of national security and terrorism studies at the Dubai-based Gulf Research Center. ''It's one thing to test the market psychology, it's another to take the actual step and stop oil exports."

Bracing for sanctions, Iran's central bank said on Friday that it is moving its foreign currency reserves out of European banks.

Iran, the second-largest oil producer in the Organization of Petroleum Exporting Countries, exports roughly 2.5 million barrels per day. It also controls the strategic Strait of Hormuz, a critical shipping lane.

''Even if Iran pulled a small amount of its oil off the market, say it pulled a half million barrels a day, I could see oil prices literally jumping over the $100 per barrel mark," said James Bartis, a senior researcher at Rand Corp.

But other oil analysts said prices would probably not climb much higher than $75 a barrel before strategic reserves would be released and demand would begin to taper off as economic activity slowed around the world.

So who would be hurt more? The United States and other nations say it would be Tehran and argue against succumbing to economic blackmail. ''We cannot be intimidated by economic threats from their side," US Senator Trent Lott, Republican of Mississippi, told CNN.

The US Department of Energy estimates oil exports finance about half of the Iranian government's budget. And while high oil prices have boosted the annual growth rate to about 5 percent, Iran has never really recovered from its 1980-1988 war against Iraq and trade restrictions on sensitive technologies.

Alani questioned ''whether the ordinary citizens will be willing to risk sanctions and endure a lot of suffering like the Iraqis suffered for 13 years" under UN sanctions.