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Posts tagged Strait of Hormuz

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Could the world handle an Iranian oil crisis?


Lately, oil markets have been jittery over fears that Europe’s new embargo on Iran could spark tensions in the Persian Gulf. So how would the world cope with an Iranian oil crisis, if it came to that? A new paper explores our options — and none of them are pleasant.

In theory, the E.U.’s embargo on Iranian oil imports, set for July, is supposed to cut into Iran’s finances without cranking up the price of crude too high. “The idea here,” says Robert McNally, president of the Rapidan group, “is that if Iran’s other customers, like China and India, see that Iran is prohibited from selling 20 percent of its crude to Europe, those countries now have leverage to bargain down the price” of the leftover oil. So the sanctions depend on China and India flouting the embargo, but forcing Iran to take a loss. Europe and the United States hope this will all go smoothly. One big worry, though, is that Iran responds by lashing out — say, by trying to block the Strait of Hormuz, where 35 percent of the world’s seaborne oil passes through. That’s a big “if.” But it would make life excruciating for everyone.

As McNally details in a new report (pdf) for the Council on Foreign Relations, a serious and prolonged disruption of the Strait of Hormuz would dwarf the oil crises of the 1970s — there’s just so much more oil at stake here:

In the truly apocalyptic scenario, McNally estimates, a complete cut-off of the 17 million barrels of oil that pass through the straits each day could cause the price of oil to rise as high as 320 percent — which would “likely tip the global economy into recession.” Now, it’s unlikely the U.S. would allow that to happen. But even lesser disruptions (if, say, Iran started harassing ships or decided to cut off some of its exports) could push the oil price up $20 or $40 or more — the sort of spike that could really put the brakes on economic growth.

So how would the world handle an Iran-related oil shock? McNally considers a couple of options, none of them perfect:

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Filed under politics economy oil markets Iran Iranian oil crisis Europe United States Persian Gulf EU embargo on Iranian oil imports China India Strait of Hormuz

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State of Denial in Coming War Catastrophe

By Greg Hunter’s USAWatchdog.com

30 JANUARY 2012

The world economy is in the tank, and the Federal Reserve’s decision to extend its zero interest rate policy to, at least, the end of 2014 proves it.  What will happen if the fragile world economy also has to deal with a war with Iran?  That should have been the big headline coming out of the World Economic Forum in Davos, Switzerland, but what was reported was concern over slow or no growth in the world.  All the signs are that the West is careening towards war with Iran, and there is not a peep about it from world leaders.  Are they in a state of denial in a coming war catastrophe?  I say yes. 

One of the first shots fired by the EU was in the form of increased sanctions to boycott Iranian oil in about five months.  The second shot looks like it will be fired by the Iranians who won’t wait for sanctions to kick in and will move to cut off oil exports of around 600,000 barrels a day to the Eurozone.  (Click here for more on this story.)  The Iranians have not yet cut off the oil.   MSNBC reported yesterday, “The Islamic Republic declared itself optimistic about a visit by U.N. nuclear experts that began on Sunday but also warned the inspectors to be “professional” or see Tehran reducing cooperation with the world body on atomic matters.  The International Atomic Energy Agency (IAEA) inspection delegation will seek to advance efforts to resolve a row about nuclear work which Iran says is for making electricity but the West suspects is aimed at seeking a nuclear weapon.”  (Click here to read the latest CNBC story.) 

The immediate cut off of oil to the EU would be a disaster, and the Iranians do not have to close the Strait of Hormuz to do it.  This would cause major pain to a European economy teetering on the brink of collapse.  How well do you think the Eurozone would perform with a spike in energy prices?  Talk about no growth, how about a giant contraction and an implosion of some of the biggest banks on both sides of the Atlantic.  This is not all out war, mind you, just an immediate cut of Iranian oil to Europe.   

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Filed under politics economy war Iran United States Europe Iranian oil Strait of Hormuz Islamic Republic Federal Reserve World Economic Forum

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