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• The reason of the war in the 1980s between Iran and Iraq was the Strait of Hormuz. If Iran plans to block it, there could be a military strike from USA on Iran, says Alastair Newton, Chief Political Analyst at Nomura. This will lead to a spiralling of oil prices to 130 USD per barrel after corrective action.
• Q: You have made some key points in your report dated 10th February about the influence of the political cycle in Israel and US over the prospects for military strike against Iran's nuclear programme this year. Can you elaborate on the various political and election scenarios that could happen over the next few months that may or may not trigger a strike?
• A: The first thing to say is that I do not think that Premier Netanyahu in Israel will want to launch a military strike in the immediate run up to Israeli general election. If things were to go wrong with the operation, that could be bad news for him electorally. Israel does not need to have a general election until September-October of next year.
• However, in January Netanyahu called a snap liquid leadership primary, waiting quite convincingly, which effectively clears a way for an early election. Now were Israel to have an early election there would be a window between them and the US presidential election on 6th November, which may provide Netanyahu the best window of opportunity politically to launch a strike against Iran.
• The point here is that Netanyahu and the American President Barack Obama don't get on particularly well although I would expect to see them preparing over the cracks in Netanyahu's visit to Washington scheduled for early next month. The Americans are very keen that the Israelis not do this nevertheless in the run up to the US Presidential elections.
• It would be a very brave candidate in the US to condemn Israel or not even support Israel for launching a military strike. Since Iraq is widely perceived in the US and indeed in Israel as being a potential existential threat to the state of Israel. I would only put about a 30% probability of this operation happening during the course of the next 12 months but that is still higher than last year and in any previous year
• Q: You put it a 30% probability but you have also said that events in Iran may precipitate an early strike. What are those events that could in fact increase that probability ratio from 30% to higher?
• A: The key issue is if the Iranians accelerate their nuclear related activity at the new facility at Fordow, which is deemed by most experts including Israeli defence minister; Ehud Barak to be more or less attack proof as far as bombing is concerned.
• The Iranians have made noises to the fact that they are going to setup a major enrichment facility there. They did rollout this new generation facility just a few days ago although it remains to be seen how effective those are. Iran has already crossed a great many declared redlines without Israel reacting by a military strike.
• There is no guarantee that Fordow would prove to be a definitive redline. For the more Iran can probably mitigate the risk of attack by coming back to negotiating table and not withstanding what you said in introductory remarks correctly about the disappointment of the IEAE visit this week. There are clear signs that the Iranians will be preparing to come back to the P5+1 format which was on ice for the last few months.
• There are also clear signs that the Americans and indeed the Europeans would welcome that. We may see a return to negotiations but I have to say based on that track record that I am extremely sceptical about Iran using the negotiations for any purpose other than to play for time.
• Q: How is the oil embargo going to play into this situation considering the kind of economic hardship that it would add to Iran's current problems? There is already a hostile situation by Iran in response to Europe's sanctions, which kick in in about 3 months' time in July this year. Do you see that exacerbating the situation?
• A: I certainly think it is going to exacerbate Iran's already non - negligible economic problems at home. A great deal would be dependent on whether Iran can find alternative customers to buy the 600,000 barrels a day or so, which the Europeans are going to embargo. It's worth keeping in mind that of Iran's major customers, China is in a dispute with Iran over payment terms and has already halved the amount of oil it's importing from Iran. Two of the other major customers, Japan and India remain to be seen as to how they would react to the Iranians trying to offload more of their oil on them.
• I do wonder if India is going to be very cautious especially given the recent alleged terrorist activity connected with Iran, which fortunately this time fails to cause any serious damage. India has already suffered enough from terrorism in recent years and would want to stay without a threat from Iran materializing as well.
• Q: What do you think the kind of role India will play at all if this conflict escalates?
• A: India finds itself in a delicate position. It has a high regard for its neutrality in many of these issues. It has close historical & contemporary relations along with valuable trade & economic links with Iran. India is a hugely responsible member of the international community and I am sure that any Indian government will wish to think very carefully about Iran's situation.
• We all have to be very cautious about the consequences of a possible monetary strike against Iran. There would certainly be an oil spike. How long will it last remains to be seen? It will depend on how the Iranians retaliate or react to an Israel military strike and it would clearly not be a good thing for India's economy as a major energy importer.
• So let us hope that sensible wise counsel prevails and that we can avoid actions, which would precipitate or at least increase the risk of a strike issue remarked in your question. We are already seeing upward pressure on oil with Brent hovering around the USD 120 mark. It is considerably higher in my view than it should be relative to economic fundamentals and though Iran is not the sole cause of that, it is certainly the major cause today.
• Q: If there is a military strike against Iran, what will the consequences be? How do you expect Iran will respond and to what extent can this escalate?
• A: My view is that Iran does not have any good retaliation options. There are some things it could do. It could launch Hezbollah against Israel although I don't see that as being bad news for oil markets. The fear that everybody has is that Iran would do something, which would block the Strait of Hormuz. Any attempt to block the Strait of Hormuz by whatever means would undoubtedly in my view lead to military action by the Americans to keep the Strait open.

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