Provoking inflation

The price of oil jumped Tuesday after an Iranian official said increased sanctions against the country would result in closure of the Strait of Hormuz.

From Iran's point of view, the sanctions would fall under the category of the United States being reckless with its goals. Be careful of what you wish for, Iran is saying, because it might come true.

The Obama administration has been walking an extremely thin line in pressuring Iran to abandon what it suspects is a nuclear weapons program. The idea, as reported in The New York Times, is to apply pressure, but not have sanctions put upward pressure on the global price of oil. In addition, it would be considered unwise to have inflated oil prices threaten international cooperation on the issue of Iran.

In addition to that, there is a distinct possibility that China, Iran's largest oil customer, could absorb any extra oil Iran might have on its hands if sanctions on oil exports were otherwise successful.

Closure of the strategic Strait of Hormuz, which Iranian vice president Mohammad-Reza Rahimi threatened Tuesday, would define sanctions backfiring as less oil on the market would put immediate pressure on prices. Even the threat of closing the critical shipping route was effective, let alone actually closing the strait.

"If they impose sanctions on Iran's oil exports, then even one drop of oil cannot flow from the Strait of Hormuz," Rahimi said.

To that, David Cohen, the Treasury Department's under secretary for terrorism and financial intelligence, said, "I don't think anybody thinks we can contravene the laws of supply and demand any more than we can contravene the laws of gravity."

Exactly so. The plan now, the Times explained, is to put pressure on corporations that do business with Iran, specifically with Iran's central bank, which acts as bill collector for much of the nation's oil industry.

It still boils down to tit for tat and the potential for sanctions to prompt global oil inflation and, in turn, generalized inflation is a distinct possibility.

The Senate approved of tougher sanctions in a bill that allows President Obama to cancel them if they turn out to undermine U.S. goals, economically and militarily. But here's another possibility: Tougher sanctions lead to higher oil prices, which benefits the country the United States is trying to punish.

To counter that possibility, the president is trying to convince other oil-rich nations to increase production and keep prices stable. That's a tall order in a market where, it turns out, a nod is as good as a wink.

In international markets Wednesday, the Nikkei 225 index in Japan lost 0.2 percent, while the Shanghai composite index in China gained 0.18 percent. The Hang Seng index in Hong Kong dropped 0.59 percent, while the Sensex in India fell 0.92 percent.

The S&P/ASX 200 in Australia lost 1.25 percent.

In midday trading in Europe, the FTSE 100 index in Britain added 0.97 percent, while the DAX 30 in Germany was flat, up 0.04 percent. The CAC 40 in France gained 0.42 percent, while the Stoxx Europe 600 index rose 0.49 percent.