Iran can point its "oil weapon" at the world this time and no one needs to duck. It already has fired a shot at Japan by suspending shipments of 525,000 barrels of oil a day, according to reports from Tokyo. But the shop is expected to glance off the Japanese without doing any harm.
Oil experts interviewed by The Christian Science Monitor point out there is a surplus of crude oil on the world markets that is nearly equivalent to the 1 to 1.5 million barrels of oil per day capable of being exported by Iran. Furthermore, world inventories of crude oil have reached record proportions -- further allaying any concern oil users have about a cutoff of oil from Iran.
"If the President had to pick a time to put pressure on Iran -- from an oil standpoint -- now is the time to do it," says Charles J. Dibona, president of the American Petroleum Institute, an industry-sponsored research and trade organization.
However, Lawrence Goldstein, senior economist at the Petroleum Industry Research Foundation, warns, "Surplus is a tenuous term." He points out that the surplus remains only as long as Saudi Arabia continues to pump 9.5 million barrels of oil a day.
Other members of the Organization of Oil Exporting Countries, to conserve oil , to keep prices up, and to keep the market in balance, he says, have already cut oil exports by about 1.5 million barrels per day since December.
Japan, which imports most of its energy requirements, would be the most vulnerable to an Iranian cutoff. Oil analysts figure that the Japanese had been receiving 525,000 barrels a day of Iran's current 800,000-barrels-a-day exports. (The reason Iran is not exporting oil at its capacity of 1.5 million barrels per day is because of its higher prices and the world surplus).
Mr. Goldstein figures that the Japanese will broach the subject of replacing their crude imports from Iran at this week's European Community meeting in Luxembourg.
Already, there have been reports, confirmed by the Japanese government, that the US government has guaranteed the Japanese replacement oil for any cutoff from Iran. Mr. Goldstein indicated the Japanese might receive North Sea oil, Alaskan, or surplus Saudi oil. Already, according to the Middle East Economic Survey, Japan has signed up for an additional 45,000 barrels of oil per day from Qatar at a premium rate of $6.50 per barrel over the posted price of $29.25 per barrel. The Japanese balked at paying the premium on an extra 80,000 barrels a day.
If Iran really wanted to test the strength of the Allies, says one oil analyst, it would reduce prices, not raise them. "We would see how willing the Japanese would be to walk away from cheap oil. It's easy for them to walk away from expensive oil."
Some European nations with country-to-country contracts with Iran have also been looking with disdain at the $35 per barrel Iranian crude. They have intentionally "underlifted," that is, bought less than contracted for, because they can buy better oil for the same money on the spot market. Indeed, one oil trader reports that the spot market for the best quality light crude oil is currently $35 to $38 per barrel. This would make Iranian oil too expensive at $ 35 per barrel.
Shell Oil and British Petroleum are also reported to have suspended buying oil from Iran. The two companies have been responsible for taking up to 245,000 barrels a day from Iran through most of the year. It is rumored by oil traders that the two companies have made up some of the slack by buying excess Kuwaiti oil on the spot market. Kuwait recently cut back on the amount of oil it would deliver to contract customers.
One major reason that the world can afford to look askance at Iranian crude is because of the build-up in inventories. In the US, for example, the American Petroleum Institute (API) reports crude-oil stocks as of March 31 stood at 362.1 million barrels, up 14.1 percent from a year ago. The US, according to Mr. Dibona, has a supply of about 25 days worth of crude oil on hand.
Japan, for its part, is reported to have 90 days of crude oil in inventory.
One oil trader for a major oil company said he was concerned that too many people are in the process of drawing down on these inventories. Thus, by the fall supplies will be running low again and the US will be vulnerable to another sharp rise in the price of oil. An indication of this is the reduced level of imports. The API reported that imports declined 9 percent in the first quarter to an average of 7.789 million barrels per day, down from 8.557 million barrels per day. The decline in March was even greater with some 7,031 million barrels imported. At the same time, domestic production increased slightly.
The oil trader indicated that his company did not believe the Saudis would cut back on their production of crude "unless the world markets become sloppy."