THE political situation with Iran has grown much more tense in recent weeks, and especially since the apparent assassination of an Iranian nuclear scientist. Some rich countries are now proposing tightened sanctions against Iran, and Iran continues to threaten to close the Strait of Hormuz, through which some 20% of world oil production passes. James Hamilton provides analysis of the potential impact:The most likely outcome of an embargo on oil purchased from Iran is that the countries participating in the embargo buy less oil from Iran while other countries not participating in the embargo by more oil from Iran…While this would produce some dislocations, if total world oil production doesn’t change, it would have little effect on either Iran or oil-consuming countries, and would basically be a symbolic gesture.If instead the embargo is successful in reducing the total amount of oil sold by Iran, then the shortfall for global consumers would have to be met by some combination of increased production elsewhere and oil price increases sufficient to bring down global petroleum demand.As for the first possibility, there appears to be only a limited amount of excess oil-producing capacity at the moment, and certainly far short of the 4.3 million barrels per day that Iran produced in the first three quarters of 2011.Iran’s production capacity represents about 5% of the world …
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