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August 14th, 2012, by Paul Sullivan

Paul Sullivan

“How do you shatter a world economy? Attack Iran”, Paul Sullivan, Georgetown University

The EU is looking at a possible contagion from the financial crises of Greece, Italy, and Ireland, and the economic collapse of Spain. China and Brazil are slowing down and Japan has been in an economic funk for decades. Much of Latin America is showing increased economic weakness. Even with the economic growth of some countries spurred by raw material exports, Sub-Saharan Africa remains mostly an economic basket case. The North African states of the Arab Spring have extremely fragile economies as well and if they are pushed backward there could be a return of instability. Russia, mostly a petro-state and a commodity exporter is weakening, even if its leaders try to mask this with bare-shirted bravado.
The world economy is on the edge.

The Middle East is in turmoil and will likely head into much greater turmoil if an attack on Iran occurs. Syria is Iran’s main partner in the Eastern Mediterranean and is already in a civil war. Iran may get far more involved in Syria if it is attacked. Hezbollah, a satellite of both Iran and Syria, would likely attack Israel if Iran is attacked. The Shia in parts of the Gulf could become restless, along with the Shia in Bahrain who could grow to become more restless. There could be more violence spurred by Iran in that small country. Iraq could fall quite quickly back into the cauldron of blood it was brewing just a few years ago.

The Middle East is on the edge of a potential, regional ethno-religious explosion.
Sixteen to seventeen million barrels of oil passes through the Straits of Hormuz daily, including most of the oil exported from the UAE, Kuwait, Iraq, Saudi Arabia, Qatar, Iraq and Iran. All of Qatar’s massive liquid natural gas exports pass through Hormuz to get to Asia. If the Straits do become a battle zone, oil prices will go through the roof. LNG markets could be severely disrupted, especially for Asia.
Along the coast and near both sides of the Gulf coast, there are massive and globally important oil and gas facilities. These include Ab Qaiq, a Saudi Arabian sweetening and processing facility that is part of the supply chain that produces six to seven million barrels of day of the 85 million barrels of oil that moves around the world markets daily. There are also massive facilities in Jubail and Ras Tanura in Saudi Arabia and the Kharg and Lavan Islands of Iran. The Gulf’s offshore oil, gas platforms and rigs contain massive amounts of energy for the world and they would be in the line of fire. The giant Ras Laffan LNG facility in the north of Qatar is also nearly a four minute rocket flight from Iran. Iraq’s ABOT and KABOT offshore facilities arguably dominate Iraq’s economy. If they get hit, then Iraq will most likely explode into huge violence.

If oil prices shoot up to even $200-250 a barrel, it would be a massive shock to the world economy. As most of the Gulf oil and gas goes to Asia, China, India, Japan, South Korea, Taiwan and other major Asian economies will get hit hard if an attack on Iran escalates into something further. Of course, the oil shocks to the US, the EU and Latin America would be severe. Sub-Saharan Africa might see much of its growth of the last few years evaporate in a huge oil shock, excepting in those countries where oil is the major export, such as Nigeria, Equatorial Guinea, and Angola. The poorer oil importers would have their economies hit very hard. Some in Asia and the EU may be in serious struggles to find natural gas.

Overall, an attack on Iran could lead to potential oil and gas shock. Reaction and counter-reaction from a potential attack could increase poverty, unemployment, debt and all of the things we are worried about these days. The global economy that we now know is weak and teetering on the edge. Even worse, it could be pushed over the edge and shattered.

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