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Iranian Threats Make Bogus Campaign Fodder Iranian Threats Make Bogus Campaign Fodder

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Energy

ANALYSIS

Iranian Threats Make Bogus Campaign Fodder

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Keystone Pipeline(Shannon Ramos)

The Iranian government’s threat to block oil shipments from the Persian Gulf further inflames the fight over the Keystone XL, a proposed 1,700-mile pipeline that would bring 700,000 barrels of oil a day from Canada to the U.S. 

It will also all but ensure that fights over higher gasoline prices and energy security will be a central issue in the 2012 elections. But energy experts say that in reality, construction of the Keystone pipeline probably wouldn’t do much to change the global impact of the Iranian threats.  

 

The standoff over Keystone is already resonating in the 2012 campaigns: Environmentalists fiercely oppose the pipeline, saying it will worsen global warming by creating a market for oil extracted from Canadian tar sands. The process creates up to 70 percent more greenhouse gases than conventional oil production.

Republicans and the oil industry say building the pipeline will reduce U.S. dependence on Middle Eastern oil and create thousands of jobs. President Obama had hoped to avoid attacks from both sides by delaying a final approval of the pipeline until after the 2012 elections. But Republicans inserted a provision in last week’s payroll tax-cut extension law, requiring Obama to decide within 60 days.

The move put Obama in a terrible position politically, as his opponents know. If he approves the pipeline, he risks losing crucial support from his political base. If he nixes it, Republicans will attack, saying he has kept the U.S. dependent on volatile sources of foreign oil – a situation highlighted by this week’s standoff with Iran. The State Department indicates two months simply isn’t enough time to complete the studies necessary for a final decision.

 

But Republicans pounced on this week’s Iranian threat to cut off access to the Strait of Hormuz, which could block transportation of most oil exports from the Persian Gulf. They said the developments highlight the need for a project that could replace up to half of U.S. oil imports from the Middle East. 

Already, the threats by the Iranian government sent the price of oil to more than $100 a barrel early on Wednesday.

“This threat underscores the need for President Obama to make a decision on the Keystone XL pipeline that would add security and certainty to U.S. oil supplies from our Canadian friends,” Rep. John Shimkus, R-Ill., a member of the House Energy and Commerce Committee, said in a statement on Wednesday.

“If in 60 days the President doesn’t approve [the Keystone pipeline], and we have an EU embargo and U.S. sanctions are going forward, I predict it will come back with a vengeance as a campaign issue,” said Robert McNally, president of the The Rapidan Group and a top energy adviser in the George W. Bush administration who now informally advises Republican political campaigns on energy matters.

 

But even if President Obama were to approve construction of the Keystone pipeline this year, the project wouldn’t be completed until long after this year’s standoff has been resolved – and when many other elements of the global oil picture will have changed. For example, U.S. oil production, particularly in North Dakota, is projected to soar in the coming years, offsetting the need for foreign imports with or without construction of the Keystone pipeline.

“I’m sure people will opportunistically point to Iran to support Keystone -- but even if Keystone was in place today, that wouldn’t change the impact on the price people pay at the pump,” said Trevor Houser, director of energy and climate policy at The Rhodium Group, a policy analysis firm. 

Houser and other energy experts acknowledged that the standoff with Iran could lead to a threat of supply disruption and fluctuating oil and gasoline prices for the next several months. 

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But even if the pipeline were built, it would have no impact on the indicator voters care about most: the price of gasoline. That’s because oil and gasoline prices are determined by events on the global market – not by the source of oil.       

The Obama administration has crafted a careful policy that it hopes will allow for sanctions on Iran without a dangerous spike in oil prices. Advisers believe Iran will continue to sell its oil to China and other Asian countries – and that with lower demand, it will have to sell the oil at a lower price. The idea is to keep the supply on the market while diminishing revenues to the Iranian treasury, thus lowering the risk of a global oil price spike. The U.S. is also relying on an increase of oil from Saudi Arabia. Saudi government officials said on Wednesday that they intend to increase production, offsetting any cutoff of Iranian supply. And as a last resort, Obama could tap the nation’s Strategic Petroleum Reserve, the 727-million-barrel stockpile of government-owned emergency oil supply. 

“There will be a lot of saber-rattling, spiky price fluctuations, and day-to-day volatility,” Houser said, but he added that the combination of Asian buyers for Iranian oil, Saudi supply, and the backup emergency supply “are enough to mitigate the worst result.” 

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