Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Semiconductor Sector – Watch the Early Bird in 2019 - 21st Jan 19
From ASEAN Economic Development to Militarization - 21st Jan 19
Will China Surprise The Us Stock Market? - 21st Jan 19
Tips to Keep Your Finances Healthy in 2019 and Beyond - 21st Jan 19
Tips for Writing Assignment in Hurry - 21st Jan 19
UK House Prices, Immigration, and Population Growth Mega Trend Forecast - 21st Jan 19
REMAIN Parliament to Subvert BrExit with Peoples Vote FIXED 2nd EU Referendum - 21st Jan 19
Pay Attention To The Russell Stocks Index and Financial Sectors - 20th Jan 19
Hyperinflation - Zimbabwe's Monetary Death Spiral - 20th Jan 19
Stock Market Counter-trend Extends - 20th Jan 19
The News About Fake News Is Fake - 20th Jan 19
Stock Market Bull Trap? January 22 Top Likely - 19th Jan 19
After the Crash, the Stock Market Made a V-shaped Recovery. What’s Next - 19th Jan 19
David Morgan: Expect Stagflation and Silver Outperformance in 2019 - 19th Jan 19
Why Brampton Manor Academy State School 41 Oxbridge Offers is Nothing to Celebrate! - 19th Jan 19
REMAIN Parliament Prepares to Subvert BrExit with Peoples Vote FIXED 2nd EU Referendum - 19th Jan 19
Gold Surges on Stock Selloff - 18th Jan 19
Crude Oil Price Will Find Strong Resistance Between $52~55 - 18th Jan 19
Stock Market’s Medium Term is No Longer Bullish. It is Now Mixed - 18th Jan 19
SPX and Gold; Pivotal Points at Hand - 18th Jan 19
Fable Media Launches New GoWin Online Casino Affiliate Site in UK - 18th Jan 19
The End of Apple! - 18th Jan 19
Debt, Division, Dysfunction, and the March to National Bankruptcy - 18th Jan 19
Creating the Best Office Space - 18th Jan 19
S&P 500 at Resistance Level, Downward Correction Ahead? - 17th Jan 19
Mauldin: My 2019 Economic Outlook - 17th Jan 19
Macro Could Weaken After US Government Shutdown. What This Means for Stocks - 17th Jan 19
US Stock Market Indexes Reaches Fibonacci Target Zone – Where to Next? - 17th Jan 19
How 2018 Was For The UK Casino Industry - 17th Jan 19
Gold Price – US$700 Or US$7000? - 16th Jan 19
Commodities Are the Right Story for 2019 - 16th Jan 19
Bitcoin Price Wavers - 15th Jan 19
History Shows That “Disruptor Stocks” Will Make You the Most Money in a Bear Market - 15th Jan 19
What Will the Stock Market Do Around Earnings Season - 15th Jan 19
2018-2019 Pop Goes The Debt Bubble - 15th Jan 19
Are Global Stock Markets About To Rally 10 Percent? - 15th Jan 19
Here's something to make you money in 2019 - 15th Jan 19
Theresa May to Lose by Over 200 Votes as Remain MP's Plot Subverting Brexit - 15th Jan 19
Europe is Burning - 14th Jan 19
S&P 500 Bounces Off 2,600, Downward Reversal? - 14th Jan 19
Gold A Rally or a Bull Market? - 14th Jan 19
Gold Stocks, Dollar and Oil Cycle Moves to Profit from in 2019 - 14th Jan 19
How To Profit From The Death Of Las Vegas - 14th Jan 19
Real Reason for Land Rover Crisis is Poor Quality of Build - 14th Jan 19
Stock Market Looking Toppy! - 13th Jan 19
Liquidity, Money Supply, and Insolvency - 13th Jan 19
Top Ten Trends Lead to Gold Price - 13th Jan 19
Silver: A Long Term Perspective - 13th Jan 19
Trump's Impeachment? Watch the Stock Market - 12th Jan 19
Big Silver Move Foreshadowed as Industrial Panic Looms - 12th Jan 19
Gold GDXJ Upside Bests GDX - 12th Jan 19
Devastating Investment Losses Are Coming: What Is Your Advisor Doing About It? - 12th Jan 19
Things to do Before Choosing the Right Credit Card - 12th Jan 19
Japanese Yen Outlook In 2019 - 11th Jan 19
Yield curve suggests that US Recession is near: Trading Setups - 11th Jan 19

Market Oracle FREE Newsletter

UK House Prices, Immigration, and Population Growth Trend Forecast

Crude Oil Supply 2012, Should We Be Worried About Iran?

Commodities / Crude Oil Jan 03, 2012 - 06:54 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleDavid Zeiler writes: If the Iranian government makes good on its recent threats to stop oil shipments through the Strait of Hormuz, oil prices would shoot up $20 to $30 a barrel within hours and the price of gasoline in the United States would rise by $1 a gallon.

Such a steep spike in crude oil prices would plunge the United States and Europe back into recession, said Money Morning Global Energy Strategist Dr. Kent Moors.


Iran just concluded a 10-day military exercise intended to prove to the West that it can choke off the flow of Persian Gulf oil whenever it wants.

The world's fourth-biggest oil producer is unhappy with fresh U.S. financial sanctions that will make it harder to sell its oil, which accounts for half of the government's revenue.

"Tehran is making a renewed political point here. The message is - we can close this anytime we want to," said Moors, who has studied Iran for more than a decade. "The oil markets are essentially ignoring the likelihood at the moment, but any increase in tensions will increase risk assessment and thereby pricing."

One reason the markets haven't reacted much to Iran's latest rhetoric is that although it has threatened to close the Strait of Hormuz many times over the past 20 years, it has never followed through on the threat.

But a fresh wave of Western sanctions could hurt Iran's economy enough to make Tehran much less cautious.

The latest sanctions, signed into law by U.S. President Barack Obama on Saturday, will make it far more difficult for refiners to buy crude oil from Iran. And looming on the horizon is further action by the European Union (EU), which next month will consider an embargo of Iranian oil.

"The present United Nations, U.S. and EU sanctions have already had a significant toll," said Moors. "They have effectively prevented Iranian access to main international banking networks. Iran now has to use inefficient exchange mechanisms."

Because international oil trade is conducted in U.S. dollars, Moors said, Iran must have a convenient way to convert U.S. dollars into its home currency or other currencies it needs, such as euros.

Pushed to the Brink
The impact of the sanctions combined with internal political instability has driven Iran to turn up the volume on its rhetoric.

"Tehran has limited options remaining," Moors said, noting Iran has historically used verbal attacks on the West to distract its population from the country's problems. "The Iranian economy is seriously weakening, the political division among the ayatollahs is increasing, and unrest is rising."

Analysts worry an Iranian government that feels cornered would be more prone to dangerous risk-taking in its dealings with the West. So while totally shutting down the Strait of Hormuz isn't likely, Iran could still escalate a confrontation beyond mere talk.

For instance, although Iran's naval assets in the Gulf are no match for the U.S. Fifth Fleet based Bahrain, its small subs and mining capabilities could severely disrupt merchant traffic in the Strait, through which 18% of the world's oil travels.

And if Iran can do enough to convince the world that it's serious, it could scare the markets enough to cause crude oil prices to jump and insurance premiums to rise. That would punish the West without harming Iran's economy.

"Even if Iran does not actually close the Strait, a continuing naval presence in its own territorial waters would put pressure on the traffic," Moors said.

[Note: Along with serving as Money Morning's Global Energy Strategist, Moors also advises governments and companies worldwide. He shares his expertise and ideas for how to profit in the energy sector in such publications as Oil and Energy Investor, Energy Advantage, The Energy Inner Circleand the new market-breaking Energy Sigma Trader.]

In a worst-case scenario, a desperate Iranian government would try to achieve its aims by arming proxies such as al-Qaeda or Hezbollah to launch attacks on shipping going through the Strait.

That sort of major threat could push oil toward $200 a barrel, which would translate to U.S. gasoline prices of $6.50 a gallon.

Iran's Dilemma
Fortunately for the West, Moors said Iran has other factors restraining it from choking off the flow of oil out of the Persian Gulf aside from the presence of the U.S. Fifth Fleet.

For one thing, Iran needs Western technology to help boost its fields with declining production; Chinese and Russian alternatives aren't as effective.

Another problem is very poor domestic refining capabilities, which means Iran must import gasoline and low-sulfur heating oil.

"The overall demand cannot be met by domestic production," Moors explained. "But even with the portion that can, the products need to be mixed with higher grade imports to avoid serious problems - including explosions."

And finally, any actions Iran takes in the Strait of Hormuz to restrict shipping would hurt its own ability to import much-needed food and consumer goods.

"Iran is as reliant, if not more reliant, on the Strait of Hormuz than any other country," Ali Nader of the RAND Corp. research institute told Bloomberg News.

Nevetheless, the situation remains volatile, and the threat to global oil markets is real.

"This increase in Iranian [military] capability is almost certainly not designed to take the form of a major war with the U.S. and southern Gulf states," wrote Anthony H. Cordesman in a Center for Strategic & International Studies report last month. "It does, however, give Iran the ability to carry out a wide range of much lower level attacks which could sharply raise the risk to Gulf shipping, and either reduce tanker traffic and shipping or sharply raise the insurance cost of such ship movements and put a different kind of pressure on the other Gulf states and world oil prices."

Source :http://moneymorning.com/2012/01/03/should-we-be-worried-about-iran/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules