THE BLOG
10/02/2012 09:28 am ET Updated Dec 02, 2012

The Charade of the Iranian Oil Embargo

The Iranian oil embargo is in force and has been somewhat effective, but not nearly as effective as it might be. The reason was spelled out clearly in the Financial Times headline "Vitol Admits Iran Fuel Oil Cargo Deal." Vitol is the world's largest oil trader with an office in Houston and affiliates throughout the world. Conveniently, not its Houston office, but rather its Bahraini subsidiary availed itself and the Vitol organization of the opportunity to buy the spot cargo of Iranian oil product from a non-Iranian counterparty and then resell it, presumably not at a loss.

The transaction raises the troubling question of how much Iranian oil and oil product cargoes are being traded outside the parameters of the embargo restrictions set in place to constrain the purchase and sale of Iranian oil. Oil traders such as Vitol are an important part of the oil market, taking title to massive quantities of oil and its related products and redirecting them to consumers throughout the world. How are they monitored and how are they being used by Iran or availing themselves as principals to eradicate the Iranian origin of the product they are selling, in effect skirting the embargo?

The United States could, in heightened support of the oil embargo and in its own long term interests initiate a process that is long overdue. The U.S. should at long last recognize that in being the world's most important consumer of fossil fuels our market is as important to oil producers as they have been in supplying our needs. Even as our consumption diminishes we will be the most important market for years to come.

That being said it should become a matter of national policy that access to our market no longer be taken for granted by all oil suppliers irrespective of their policies and/or their pricing strategies such as OPEC cartel manipulation. That henceforward all imports of foreign crude oil/products into the United States should require an import license designating the country of production origin, not simply the port of shipment. Ideally it would be a system put into place, with licenses freely available without ever a need to impose restrictions. However, given as example not only Iran, but such suppliers as Venezuela with its hawkish stance to push oil prices ever higher, combined with its confrontational and malign and dangerously contentious policies, might it not make sense, especially as our needs diminish and other supplies become available from shale, the North Slope, offshore, and of course alternative fuels, that we have a program in place to limit or stop imports from those nations whose policies are inimical to our interests by simply refusing them or limiting oil import licenses. Perhaps our ability to act accordingly would dissuade the likes of Venezuela and others from promulgating their hostile policies.

Clearly one could argue that oil is a fungible commodity whereby substitution or exchanges with other producers or traders in some measure could well neutralize the objectives of such a program. But all these 'exchange' activities leave a trail, and if there is a willingness to institute a viable licensing program, this too can be dealt with effectively.

It is long past time that the United States use its oil purchasing power as a strength rather than an abject and character distorting weakness.