Oil prices jump on rumors Iran to hold maneuvers in Strait of Hormuz
Posted on 14 December 2011 with 2 comments from readers
Oil prices jumped above $100 -a-barrel yesterday on reports that Iran plans to hold military maneuvers to practice the closing of the Strait of Hormuz, according to Bloomberg citing the Fars news agency, although the Iranian Foreign Ministry later denied this report sending oil prices lower.
This is a mark of how tense relations between the nations now imposing trade sanctions and Iran have become. It is not as though the ability of the Iranian navy in its home waters to block the Strait is an unknown factor. But this sort of market rumor and the price response shows a very nervous oil market.
Persian Gulf oil supplies
Around 15.5 million barrels of oil travels through these waters each day or about one sixth of global consumption, mostly heading for Europe and China. Iran is the second largest Opec oil producer after Saudi Arabia with an output of 4.25 million barrels per day.
Not all Gulf oil passes via the Strait of Hormuz. The United Arab Emirates has recently opened a pipeline bypassing this natural bottleneck to the Indian Ocean.
However, Iran would not take such a bold decision lightly for it would cut off its only source of foreign exchange, plunging the country into a very serious economic recession. This would not make its government very popular with people who are already suffering from the impact of Western sanctions on external trade.
Oil boycott?
European governments are also mulling a boycott of Iranian oil in anycase after an IAEA report that the country is working on a nuclear weapons program. At the same time the whole Persian Gulf region is in a state of heightened tension because of the departure of the US from Iraq at the end of this month.
On the other hand, with the US to leave 20,000 personnel at its embassy compound in Baghdad, by far the largest US embassy in the world, and thousands at other consulates around the country this withdrawal is mainly symbolic with most of the military machine remaining close at hand in Kuwait.
In these circumstances any real change to the status quo in the region looks highly unlikely. The Iranian military threat remains nothing in comparison to the overwhelming force it would be stacked against.
2 Comments posted by readers:
The European debts are probably more dangerous than Iran right now. Italy needs to borrow a LOT of money early next year. I wouldn’t lend it to them.
Some fellow in Germany just said on CNBC Europe, that the Brits were living in the delusional glow of their past empire. He claimed that was why they wouldn’t go along with the euro reform program. Aren’t they a lovable bunch? Another one said that ‘other currency powers’ could be trying to hurt the euro. He must be reading some sinister person’s remarks on this site! If the UK is so insignificant, why are the Germans and French so upset? They make me more thankful for Canada and Mexico every day. I can’t remember the Republican candidate who suggested an electric fence to keep the Mexicans out. Are we good neighbors, or what!
Pedro DeNoronha (pronounce THAT) a VERY successful hedge fund manager, (I would need to give him a million to get in, so I’m a bit short.) just said that a massive bond debt write down is the only way to fix the debt crisis in a reasonable amount of time. He is probably right, but it won’t happen.
Libyan oil is coming back faster than expected.
75% of the oil consumed today was discovered before 1980. 90% being produced today was discovered before 2000. See a problem?
So, are we facing deflationary times? Or inflationary? Do tell.
Or is it a mystery wrapped in an enigma.
I’m on a hair trigger to buy gold tomorrow. I’m asking myself is it speculation. The answer comes back yes, however, its the only thing i trust now, and that’s a different argument.
Buying on the dips means, buying after the bottom, in my POV.
Chop, i like Sinclair’s word. A peak and a trough, a wave action.