Data provided by iNet BFA
Loading...
See More

Record oil price looms amid Iran quarrel

Jan 03 2012 07:50 AP

Related Articles

Afghanistan signs major oil deal with China

Oil mixed as Mideast tensions simmer

Iran warns of closing strategic oil route

Iran test-fires long-range missiles

Iran: Opec likely to keep output unchanged

Oil higher after Opec output decision

 

Frankfurt - Iran's threat to block oil transport in the Strait of Hormuz came as markets closed for the New Year holidays, but oil prices could soar if the conflict over Tehran's nuclear programme escalates and the country makes good on its warning.

Iran made the headlines at the start of the year by testing cruise missiles.

The country, which is a member of the Organisation of the Petroleum Exporting Countries (Opec), tried its most modern naval defence weapon as tensions rose over new sanctions by the United States.

Those measures, signed into law by US President Barack Obama on Saturday, target Iran's oil trade by banning business with Tehran's central bank. They are aimed at pressuring Tehran to stop its controversial nuclear programme.

Before Iran started flexing its military muscles, its Vice-President Mohammad-Reza Rahimi warned last week that his country would not allow "one drop of oil" through the Strait of Hormuz, should Western governments impose further punitive measures.

An estimated 40% of the oil transported by ship globally travels through this waterway, which is the gate to the Persian Gulf.

The strait, which is 50km wide, is a bottleneck and the risk of a blockade by Iran is real, said Frank Schallenberger, a commodity expert at the German bank Landesbank Baden-Wuerttemberg.

"Should Iran really carry out its threat of a blockade, the oil price will shoot up," he said.

Western industrialised countries would be able to compensate at first by tapping into their strategic reserves. "But the reserves are limited," Schallenberger said.

If the situation escalates, oil prices could rise by 20% in the short term, he estimated.

Benchmark prices currently stand at slightly below $99 per barrel for the US brand West Texas Intermediate, and slightly above $107 for the European brand Brent.

If the Strait Of Hormuz were closed off for a longer period, new record prices above the 2008 historical high of $150 would be possible, he said.

However, Schallenberger said a long-term shutdown of traffic in the Gulf is unlikely.

All other countries on the Gulf, including Saudi Arabia, have a keen interest in keeping the waterway open and would bring strong pressure to bear on their fellow Opec member Iran to allow shipments.

Many of these Arab countries also share the West's suspicions that Iran is working on a nuclear weapon. These concerns were reinforced late last year, when the International Atomic Energy Agency produced a detailed report about various military weapons projects in Iran.

Geopolitical risks have moved oil prices time and again in recent years.

In 2011, the civil war in Libya sent jitters through commodity markets, as the Opec country stopped all production while the conflict was going on.

However, Libya's exports are only a fraction of the amount travelling through the Strait of Hormuz.

But even if Iran does not block traffic in the Persian Gulf, experts expect oil prices to rise this year, pointing to booming economies in Asia and expansionary monetary policies in various countries.

"A boundless expansion of money supply can find its way into commodity markets and can fire up oil prices," said Thilo Heidrich, a German expert at Postbank.

Consumers should therefore brace themselves for higher oil prices, no matter what happens in the Persian Gulf.

opec  |  iran  |  commodities  |  oil
NEXT ON FIN24X

 
 
 

Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
0 comments
Add your comment
Comment 0 characters remaining
 

Company Snapshot

We're talking about:

Small Business

A cash flow crunch often occurs in small businesses trying to balance cash coming in with cash going out. Watch this video to help you improve.
 
 

Where can you stash your cash?

Fin24 user Tinashe Guramatunhu presents a review of the best way to invest a windfall or bonus.

 
 

Start saving...

Where can you stash your cash?
Time the key for retirement saving
Dummy's guide to saving
Save money with affordable account

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...
Loading...