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In retaliation to the increasing number of economic sanctions being placed on them, Iran has threatened to close down the Straight of Hormuz. The economic impact of this vital waterway will has far reaching effects. Today on Down to Business English, Skip and Dez look at the economic sanctions against Iran and how they could possibly effect the future of oil prices.
Skip: Hello everyone this is Skip Montreux coming to you from Tokyo, Japan.
Dez: And this is Dez Morgan reporting from Abu Dhabi in the UAE.
Skip: Welcome everyone to an all new episode of Down to Business English.
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Dez: Yes, Welcome everyone.
Skip: Dez can I ask you a question?
Dez: Fire away.
Skip: I was wondering how close are you to the Straits of Hormuz?
Dez: Pretty close really. If you went north from Abu Dhabi, past Dubai to the end of the peninsula and looked into the sea then you would be looking at the Straits of Hormuz.
Skip: Now, I’m sure you know why I asked that question.
Dez: Something to do with the country on the other side of the Straits?
Skip: That’s right and that country-Iran- has a big disagreement with the West and especially the US.
Dez: And that is our topic for today; so let’s do it let’s get D2B…. Down to Business with the economic sanctions against Iran and how they could effect the price of oil in the future.
Dez: Although I am living right on Iran’s doorstep I have to admit that I am not fully on top of this story.
Skip: Well lucky for you, I have been following the situation recently so I should be able to shed some light on it for our listeners and you too Dez .
Dez: Great. So I guess the first question would be, how serious a problem is it?
Skip: I don’t think it is an understatement to say that this is the most serious US – Iran crisis since the fall of the Shah in 1979?
Dez: Really that bad? Do you think I should be looking for another job? Should I get out of the Middle East?
Skip: Oh come on Dez, calm down.
Dez: I think…I think I can hear fighter jets in the distance.
Skip: Dez. Relax. Take a breath
Dez: Oh sorry about that. So why do you say it’s the worst now since 1979?
Skip: First off let me back up a bit and give some background information on the Straits of Hormuz. Now believe it or not, 35% of the world’s seaborne oil shipments need to travel through the Straights on a daily basis making them the biggest choke point in the world.
Dez: Wow, pretty significant then.
Skip: Think about it Dez. Saudi Arabia, Kuwait, Qatar, the UAE and Iran itself all need to use the Straits to ship their oil.
Dez: I can see why it’s important but my questions are what is the fight about and why now?
Skip: Fundamentally, it comes down to the US and Europe demanding that Iran stop developing nuclear technology. While Iran ardently claims their program is solely for peaceful purposes, the US is equally convinced that they are trying to develop the capability to build nuclear weapons.
Dez: Wow, that is a bit rich considering the nuclear power industry was started under the Shah and was fully backed by the West. In fact it was the German company Siemens that was building the first power station.
Skip: Impressive Dez. I didn’t even know that.
Dez: And I bet you won’t know why the development was halted.
Skip: No, I don’t. Why was it stopped?
Dez: Well unbelievably it was the Iranians themselves that halted the building under the Ayatollah Khomeini as he considered it to be the work of the devil.
Skip: Well that is certainly a bit of interesting background.
Dez: It is, but getting back to today, from the West’s perspective, Iran with nuclear weapons would not be a positive step in the region. But back to my second question, why now? The US has had sanctions in place against Iran for years. Why is Iran pushing back so hard now?
Skip: From Iran’s perspective there are 2 main issues motivating them to stand up to the US. Firstly, Iran has significant economic problems at the moment. The Iranian Rial has appreciated 80% against the US dollar over the past 12 months meaning there has been a depreciation in the value of their oil sales. And secondly widespread corruption in the Iranian government.
Dez: I did read that several of President Ahmadinejad’s closest advisers will soon find themselves in court on corruption charges.
Skip: Yes, they will be tried for the largest case of banking fraud in the countries history. Furthermore President Ahmadinejad is also involved in an all out political war with Iran’s religious leader Ayatollah Khamenei which is making the country even less stable.
Dez: Doesn’t look too good.
Skip: On top of all that is the effect that the sanctions are having on the country. The US, EU and United Nations have effectively cut Iran off from international banking which is essential as oil sales are in US dollars,
Dez: Of course.
Skip: Iran was removed from the Asian Clearing Union, or ACU, which covered the clearing and transfer of American dollars into Rials which means that it is increasingly difficult for Iran to get paid.
Dez: That was part of the sanctions?
Skip: It was and Iran now has to use more expensive means to transfer money mostly through Dubai or Turkish based intermediary banks. On top of that, Germany under pressure from Washington closed the Hamburg based, but Iranian owned, Europaish-Iranische Handelsbank.
Dez: That seems a bit harsh.
Skip: Well American intelligence agencies believe that through this bank the Iranians were funding arms deals, buying nuclear materials and subsidizing Hezbollah and Hamas.
Dez: Maybe not so harsh then.
Skip: The EU has stopped importing Iranian oil all together and now Japan has pledged to reduce their imports as much as they possibly can.
Dez: That must be making it very difficult for the leadership in Tehran.
Skip: That is the aim of course to destabilize the government and so lead to a regime change which of course the leadership in Tehran is resisting with every asset at their disposal, including the threat of closing the Straights.
Dez: I see, so what do you think will happen next.
Skip: It’s hard to say but it seems likely that the crisis will intensify. If Iran does attempt to close The Straits then Saudi Arabia will respond. The terrorist groups Hezbollah and Hamas both receive funding from Iran so they won’t stand by while their main sponsor is under attack. The US has a base in Bahrain so needs to transit through the the Straits.
Dez: So whatever happens it is a fair bet that the price of oil will rise
Skip: Unfortunately for the world economies that does seem likely but that was the gamble the US took when it increased the sanctions.
Dez: Let’s hope that Iran backs down first.
Skip: Or at least that cooler heads prevail on both sides.
Dez: Thanks for that story Skip I certainly understand the issue better now.
Skip My pleasure, but now it is time for us to get D2V…Down to Vocabulary.
Skip: I will start things off with a very important word for understanding today’s story, the noun sanction. It is interesting to note that sanction has two opposite meanings. As we used it in today’s story, it means an official penalty. The US and Europe are penalizing Iran for developing nuclear technology. But the second definition of sanction is to give official permission.
Dez: For example, The PGA, the Professional Golf Association in the US sanctioned a new type of golf ball last year that is designed so that it will always goes straight. They have given players official permission to use it in tournaments.
Skip: Cool. Now I should point out that sanction is commonly used as both a noun and verb.
Dez: Our next word is the noun peninsula which is a long usually thin piece of land that sticks out into the sea. In the story I talk about the northern most tip or peninsula that makes up the landmass of the UAE and Oman.
Skip Another famous peninsula is Cape Cod in Massachusetts in the United States, which is a long curved peninsula and is popular in the summer for vacations. Next I have the idiomatic phrase to be on top of something which means to know about something or be in control of it. In the story Dez said that he wasn’t on top of the information surrounding this situation meaning he didn’t know about it.
Dez: I do now of course. And did you ever get on top of the web designing software, Dreamweaver?
Skip: I am slowly getting there.
Dez: Now I have the noun Shah which is derived from the Persian word for King or ruler. In the story Skip was referring to the leader of Iran before it became an Islamic Republic in 1979.
Skip: I don’t think I can think of another famous Shah.
Dez: Me neither.
Skip: Okay, for our next 2 words our regular listeners should be able to quickly recall them as they are a review of vocabulary from our D2B 46, Cybercrime.
Dez: And to review vocabulary is always a good thing.
Skip: So the first word is corruption. The noun corruption refers to the activity of profiting in an illegal or immoral way. We can also use the adjective to be corrupt and the verb to corrupt. In the story Dez talks about the corruption charges against several of President Ahmedinejad’s close advisors.
Dez: In our last episode primarily on unemployment we talked about a BBC survey on what issues people worried about around the world.
Skip: Yes, I remember that.
Dez: Well corruption was still the biggest concern especially in the following countries; India, Turkey, Indonesia, Nigeria and Peru.
Skip: Interesting.
Dez: The second of those review words is the noun fraud which is the action of gaining money from another party through illegal means.
Skip: So fraud is a more specific subset of corruption?
Dez: That sounds about right. In the story Skip talked about the banking fraud that the Iranian government officials were being investigated over.
Skip: For my further example I will use the adjective fraudulent. There are a lot of fraudulent practices on the Internet where people try to get access to personal details and bank account numbers.
Dez: Following on I have a verb to destabilize which I will break down for you. The root is the adjective stable so the verb to stabilize would mean to make something more stable and then we add the prefix de and we end up with the opposite to make less stable or balanced. In the story Skip talks about how the aim of the US government is to make the political system in Iran less stable or to destabilize it.
Skip: Another example would be how the banking crisis in 2007 and 2008 destabilized the world economies and caused markets to crash.
Dez: The next word today is the noun regime which comes from the same sentence as destabilize. A regime means a government that is in power or a style or method of governing. In the story Skip talks about the regime or government that is in power in Iran at the moment.
Skip: A further example of that would be the regime of Silvio Berlusconi in Italy which was often described as corrupt and not representing the needs of the people.
Dez: Very true.
Skip: Okay, our last word for today is the verb to intensify which means to make greater or to strengthen in some way. In the story I predict that the crisis will likely intensify or become worse over the next few weeks and months.
Dez: I was watching a technology show the other day and they were saying that competition in the computer tablet market will likely intensify as Toshiba and Sony have some very promising new entries.
Skip: The iPad will still rule though, that is my prediction.
Dez: I would be inclined to agree with you.
Skip: Thank you. And that is about all the time we have for vocabulary today.
Skip: We hope that you found today’s report interesting and that you will go to our website and download the audio script for the show. The website address is downtobusinessenglish.com, once again downtobusinessenglish.com. And while you are there please sign up for the newsletter.
Dez: The Newsletter is a great addition to the podcast as it contains background information on stories covered as well as some additional stories that we just couldn’t fit into the podcasts.
Skip: And by the way Dez Happy Golden Anniversary.
Dez: What?! How can I have been married for 50 years. I’m still single and proud of it.
Skip: Oh Dez. Don’t you know? This is the 50th episode of Down to Business English.
Dez: I totally forgot. So it is. Too bad we couldn’t get together to celebrate.
Skip: Maybe for the centennial episode. Thanks for listening everyone and I hope you stay safe over there Dez.
Dez: I can hear those planes again I’m sure they are heading this way from Iran.
Skip: Okay. Goodbye everyone.
Dez: Bye everyone it was nice knowing you.
Skip: Oh dear.
