Iran's War Games and Energy Prices

Iran doesn't do anything without an eye towards boosting its own power and prestige. In this case, it means doing just about anything to increase the price of oil, which has dropped by more than half of its all time peak over the summer.

Iran is holding war games in the Sea of Oman and Persian Gulf, and claims to have successfully tested surface to surface missiles from one of its ships.

Iran launched six days of naval war games on Tuesday in the Sea of Oman and the Gulf region amid tension with the United States and Israel, which have not ruled out military action if diplomacy fails to end a row over Tehran's nuclear work.

Iran has said that, if pushed, it could close the Strait of Hormuz at the entrance to the Gulf and through which about 40 percent of the world's traded oil passes.

"The surface-to-surface Nasr-2 missile was tested in the (Sea of) Oman operational region," state radio reported, adding that the test took place on Saturday.

"The Nasr-2 was fired from a warship and hit its target at a distance of 30 km (19 miles) and destroyed it," the official news agency IRNA said, adding it was the first test of the new, medium-range missile.

The Iranians claimed success (and I always have my doubts about the Iranian threats as most have proven to be inflated and exaggerated, if not outright frauds), but the real intention was to suggest that the Iranians could close the Persian Gulf shipping channels, causing a crisis in oil supplies. Curiously, FARS, the Iranian news outfit, suggests that a Nasr-1 missile was fired. The Nasr missile is a derivative of a Chinese missile design.

Should Iran shut down shipping, the price of oil would increase significantly, and would threaten the world economy, and particularly affect European and Asian energy needs.