THE BLOG
11/29/2009 05:49 pm ET Updated May 25, 2011

With Russia And China On Board Iran Can Now Be Stopped

In response to Iran's defiance of the International Nuclear Agency to desist its development, open its nuclear facilities to inspection and to freeze its uranium enrichment, the United Nations took a fateful step. The board of the U.N. nuclear agency voted overwhelmingly to demand that Iran stop building its newly revealed plant and open it to inspection forthwith. Exacerbating the tensions at hand, Iran announced plans to build a further 10 industrial-scale enrichment facilities.

The game changer in this vote was that Russia and China joined the U.S. and its allies in the majority. With Russia and China on board, swift and immediate action becomes possible.

Some 80% of Iran's export earnings come from oil. Oil sale revenues are the paymaster of more than 50% of the government's budget, including the salaries and financing of the Mullah's goon brigades brutally oppressing Iran's brave citizenry.

Iran's oil exports have been ranging in the vicinity of 2.1 million barrels a day, with Japan and China as Iran's largest buyers, each pulling some 500,000 bbls /day. Other major destinations for Iranian oil are India (375 mm/bbls) and South Korea (250 mm/bbls) with South Africa, Italy, France, Spain and Greece all with over 100mm bbls/day each.

An entente between Russia, China, the United States and some friendly persuasion by Saudi Arabia could bring this offtake -- shipments that are the lifeblood of Iran's renegade regime -- to a halt almost overnight.

Firstly, the world is awash with oil. Land storage is filled to capacity and hundreds of millions of barrels of oil are being held in supertankers idling at anchor around the world. A UN sponsored international embargo of Iran's oil would have virtually no impact on the world's immediate day to day oil supply needs.

Going further forward, Saudi Arabia has sitting idle some 4.5 million barrels of oil production capacity that could be brought on stream in very short order. 4.5 million barrels per day is double the shortfall that would result from a 100% embargo of Iran's oil exports. Russia, too, has spare capacity that could be made available. We in the United States have hundreds, if not thousands, of marginal shut in wells and of course our Strategic Petroleum Reserve (SPR) of more than 700 million barrels. The SPR alone could offset the Iranian export shortfall for an entire year. Though there would be little need to dedicate any significant portion of the SPR to the Iranian embargo program, some gesture of solidarity and announced availability of our SPR to other nations participating in the boycott would probably go a very long way toward achieving unanimity of action. (Regardless of the downside of using the SPR, it is an alternative immeasurably better than the open hostilities that might otherwise ensue. To paraphrase, better oil than blood!)

On another matter related to the Iran imbroglio which now, given Iran's intransigence, calls for immediate response, and on which the United States can act unilaterally. The issue is the matter of gasoline exports from Venezuela to Iran (It should be noted that Venezuela voted against the U.N. resolution to censure Iran). In September, Venezuela entered into an agreement with Iran to supply 20,000 barrels of petrol per day (840,000 gallons of gasoline), starting in October. Iran, while bountiful in oil, does not have the refining capacity to cover its domestic needs for gasoline and is heavily dependent on imports. The United States, as a matter of national policy, is responding to Iran's nuclear stonewalling by actively enlisting world producers to curb gasoline exports to Iran. Bloomberg reported that gasoline export sanctions were passed on October 28 by the House Foreign Affairs Committee.

And yet, in spite of the government's stated policy, a major gap is being tolerated. If one considers Venezuela's national oil company, Petroleos de Venezuela, S.A. (PDV) as a single national entity, one could readily conclude that Venezuela is shipping directly, and certainly indirectly, American gasoline to Iran.

Gasoline is in large measure a fungible commodity. Therefore, where it is made is secondary to who owns it. And Venezuela's PDV's wholly owned American subsidiary, U.S. based Citgo Refinery Corporation (CITGO) has refinery locations in Lake Charles, Louisiana; Corpus Christie, Texas; and Lemont, Illinois. So the question becomes not is gasoline being shipped from these locations to Iran, but rather because of the Venezuelan government's (PDV's) farflung refining capabilities, from what location have shipments been enabled to Iran because of PDV's available capacity in the American heartland.

In spirit and in fact it could be construed as a breach of American policy and law. What remedies are available? Perhaps we can learn from Venezuela itself. We could learn from Venezuela's expropriation of the Venezuelan assets of oil service companies such as the Williams Companies, or their decision to simply not pay the bills of companies such as Helmerich and Payne or Schlumberger, who are owed hundreds of millions. Or by simply expropriating drilling rigs and terminals servicing the oil industry. Or by unilaterally amending royalty arrangements, tantamount to nationalization, and in essence canceling agreements with the likes of Exxon, Chevron, and Total of France.

Mr. Chavez's proclivities, however, are not limited to oil and its attendants. He is not shy about going further afield by seizing US food giant Cargill's Venezuelan pasta plant after having simply expropriated their Venezuelan rice mill. But these are but a few examples of how it's done in Venezuela. Maybe we can learn something from Hugo after all?