The Economic Consequences of Iranian Nukes

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The Economic Consequences of Iranian Nukes
REPORT: Nuclear Iran would ‘double’ oil prices, cost millions of U.S. jobs
Mahmoud Ahmadinejad / AP

Mahmoud Ahmadinejad / AP

BY: Adam Kredo
October 10, 2012 11:14 am

Oil prices “could double,” increasing the U.S. price of gasoline by up to $2.75, if Iran is permitted to obtain a nuclear weapon, according to a new economic analysis by a bipartisan team of current and former government officials.

While much attention has been given to the costs of preventive military action against Iran, a new report by the Bipartisan Policy Center shows that, over time, “gasoline prices could increase by more than 70 percent,” sending America “into a severe recession” and costing the country “more than five million” jobs.

“If any of the conflicts or energy disruptions that become more likely from a nuclear Iran actually occur, the energy impact and economic consequences would be more severe,” the report states. “Inflation could skyrocket to almost 5 percent,” leading to widespread job loss.

Authored by a team of former military leaders, economists, and lawmakers, the report examines a handful of scenarios that could result if Iran is permitted to obtain a nuclear weapon. In each outcome, oil and gasoline prices increase exponentially.

“Inaction also poses economic risks,” former Democratic Sen. Charles Robb (Va.) told a group of reporters Wednesday during a discussion about the report. “Heightened expectation … and instability triggered by the consequences of a nuclear Iran would cause the price of oil to go much higher and remain high … significantly impacting the US economy.”

Economic outcomes, while difficult to predict, are critical to the debate over whether America should use military action to prevent Iran from achieving a nuclear weapon, the authors said.

“We think that the expectation alone of instability and conflict that a nuclear Iran could trigger … could increase the price of oil,” Michael Makovsky, director of the Bipartisan Policy Center’s Foreign Policy Project, told the audience.

In the short term, the price of a barrel of oil could surge by $11 to $27 dollars after Iran announces it has a working nuclear bomb, the report states.

“The expectation of instability and conflict that a nuclear Iran” poses would quickly lead to a 10 to 25 percent jump in global oil prices, or $11 to $27 dollars more per barrel.

Prices would increase the longer Iran threatens the greater Middle East with nuclear warfare and may lead to the loss of nearly 1 million jobs in the U.S., the report states.

“As instability and tensions remain high, so will prices, even rising, during the next several years, reaching levels of as much as 30 to 50 percent, or $30 to $55 per barrel, higher,” the report states. “Within three years, U.S. gasoline prices could increase by over 30 percent, which equates to roughly paying an additional $1.40 per gallon at the pump.”

Due to the massive price increase, “both inflation and unemployment would be projected to rise by 1 percent, which equates to a loss of more than one million jobs,” the report says.

Further tensions, such as those between Iran and Saudi Arabia—one of the world’s largest producers of oil—could only exacerbate the economic woes.

“There’s an ongoing competition between the Iranians and the Saudis,” said Dennis Ross, a former Middle East adviser to President Obama. “The Saudis have made it clear: If the Iranian acquire this weapon, they will.”

A nuclear arms race or even potential conflict “would create a new reality in the region,” Ross said, creating the “potential for much greater disruption down the road.

A nuclear-armed Iran could easily disrupt the flow of oil in a region that provides nearly 20 percent of the world’s daily oil supply.

By plugging the Strait of Hormuz, a vital shipping lane, oil producing countries like Saudi Arabia would be unable to circulate their product.

“If oil production or exports from the region are interrupted, the rest of the world would have an extremely difficult time replacing those supplies,” the report states.

“It’s hard to imagine Iran with nuclear weapons behaving more responsibly than they are today,” said Ross, who explained that the regime would use the weapon as “a shield by which they can engage in a higher degree of coercing and their proxies can engage in a higher degree of coercion.”

“You run a pretty high risk once you have Iran with nuclear weapons,” he said.

Supply disruptions would not be the only outcome, however. Even the notion of a nuclear Iran is enough to stimulate oil prices.

“Our analysis suggests that a nuclear Iran would heighten expectation of potential future disruptions, which should translate, if understood properly, into an increased risk premium added onto oil prices for as long as the concerns and tensions remain,” the report states. “In other words, anticipation of future energy oil disruption would be priced into the market, leading to higher oil and gasoline prices.”

A known sponsor of terrorism across the globe, Iran would only increase its terrorist activities if it constructs a bomb, the report argues.

“Greater Iranian influence in the region” would embolden “Iranian-sponsored terrorist groups, such as Hezbollah,” possibly leading to “the further spread of radical Islamism and anti-Americanism in an already tumultuous region.”

It also would reduce the “chance for Arab-Israeli peace” and prompt “greater military deployments to the region that American taxpayers will need to fund to try to deter Iranian aggression,” according to the report.


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