The Caucuses: Okay, but keep an eye out in the Middle East

Yes, there is a political race — of sorts — taking place today. The Iowa Caucuses are important why? Well, supposedly it is important to the people of Iowa although not so much those of the Democrat stripe during this presidential election. Surely millions of dollars will have been spent before this first step on the road to the Republican presidential nomination begins. Perhaps that is important. Still, something is brewing that could prove of major consequence to not just the 2012 elections but likewise the worldwide economy.

That would be the tensions between the U.S. and Iran. At the present, the Iranian government is engaged in major saber-rattling amid new sanctions signed Saturday by President Obama which are aimed at Iran’s central bank. The sanctions come amid growing nuclear ambitions in Iran that Western leaders say are meant for developing weapons. Already the rial, Iran’s currency, has reached a record low against the U.S. dollar as of Monday. The Tehran government said the falling rial — which has lost a third of its value since September — is unrelated to the sanctions although that is open to speculation, one might say.

The Iranian Navy is engaged in a large-scale exercise off its coast near the Strait of Hormuz, between the Persian Gulf and the Gulf of Oman. A new cruise missile known as the “Ghader” was test-fired Monday, leading the Iranian Navy head to boast of “proof” the Islamic republic controls the petro-strategic strait that Iran has threatened to close. Such a blockage of the strait and thus idling petroleum tankers could cause dire consequences, according to foreign policy experts such as the Brookings Institution’s Vali Nasr.

“Iran notes that Western economies are under stress and predicts they could not afford higher oil prices. Even the threat of disruption in oil supply would send energy prices spiraling sky high, and that would plunge the already struggling economies of the United States and Europe into deeper recession. Iran is hoping to change the conversation in Western capitals from how tightly to squeeze Iran to what could be the cost of doing so.

 “Nor would economic woes caused by conflict in the Persian Gulf remain limited to the West. Persian Gulf exports already account for 60% of Asia’s energy consumption. Economies from India to China would be impacted by a Persian Gulf oil cutoff and higher energy prices. Iran is in effect threatening global economic crisis.”

Still, U.S. officials say they have no intention of letting any government impede shipping in the vital Gulf area even though the Iranians have warned the U.S. to not replace the carrier USS John C. Stennis which recently departed the area.

The U.S. Navy operates under international maritime conventions to maintain “a constant state of high vigilance to ensure the continued safe flow of maritime traffic in waterways critical to global commerce,” said Pentagon spokesman George Little.

It is clear the Strait of Hormuz is a volatile area right now although the Iranian Navy has only a few destroyers and corsairs in addition to a fleet of speedy patrol craft. In short, Iran’s Navy is no match for that of the United States or perhaps even a carrier or carrier task force.

Although the Tehran saber-rattling is pesky it is still preferable to what would be the first sea battle since the 1983 Falklands War between Great Britain and Argentina. Nonetheless, an itchy-trigger finger or mistake by either Navy could set the whole Gulf on fire, disrupt oil shipments and most importantly, would likely result in casualties. A battle might also prove the right time for Israel to take out the Iranian nuclear facilities. While there are some hawks who would like to see the latter, another war is not what the U.S. needs at the moment. Neither does the economy need a war or even more threats. The price of oil in the U.S. jumped $4 per barrel today just over all the Iran-U.S. rhetoric.

So, let Iowa have its day in the sun. But keep an eye toward the Strait of Hormuz. If something happens there then all bets are off on the state of the economy and the presidential election. Significant changes affecting either should not be a cause for great expectation nor a general state of great joy.