Craig Eisele on …..

February 26, 2012

Iran, Israel and Oil Prices

Filed under: Uncategorized — Mr. Craig @ 12:39 am

Global oil prices jumped to a nine-month high Tuesday to $106 a barrel after Iran announced it was stopping oil shipments to France and Britain. Iran is responding to heavy pressure from America, Europe and other allies, who want to stop the country’s nuclear power program before the radical regime can build nuclear weapons.

This most recent move by Iran to ban oil exports to the two European countries comes as a direct preemptive response to the European Union’s planned Iran oil embargo set for this summer. The EU has already frozen assets of Iran’s central bank.

In recent weeks, you’ve also probably heard news stories about Iran threatening to shut down the Strait of Hormuz. It hasn’t happened yet, but Iran has indicated it could close the Strait or take other measures should the country feel threatened enough by the Western allies.

But right now you might be wondering: What is the Strait of Hormuz and why does it matter TO YOU?

If Iran tries to block the Strait it could have a huge impact on world oil prices, which would directly impact how much you pay for groceries, gas and electronics — all of which use oil in some way, whether it’s part of the manufacturing or shipping process.

The Strait of Hormuz is a waterway that connects the Persian Gulf to the Arabian Sea. It is the only passage to the open ocean for some of the biggest oil producers in the Middle East

 About 20% of the world’s oil passes through the Strait of Hormuz, including crude oil produced in Saudi Arabia, Iran, and Kuwait. It’s a water way that’s “absolutely critical to the world economy,” according Dr. Daniel Yergin, energy expert and Pulitzer Prize winning author of The Prize and The Quest.

Yergin calls the Strait of Hormuz “the most important chokepoint in the world.”

Because so much of the world’s oil travels through Strait, any disruption to the shipping channel would have a major impact on global crude oil prices, which ultimately determine the price we pay for gas at the pump.

Some analysts estimate the price of oil could go up by 50% within days if there’s a disruption of supply, which would mean much higher prices for us filling our tanks at the gas station — and anything else that requires the use of oil. Crude oil and gas prices have risen sharply since September in large part because of the threat of a disruption in the Strait of Hormuz.

“We’ve seen oil prices just on threats go up $5, $10 a barrel” in a day, Yergin says. “This is Iran’s trump card.”

The average price for regular unleaded gas today is $3.58 up nearly 9% since the beginning of this year, according to AAA.com. That is still slightly lower than the highest record average price of $4.11 set in July 2008. But many analysts are predicting that with the threat from Iran coupled with the warmer weather ahead, the U.S. maybe be headed for $4 or even $5 gas prices.

Whether Iran really can shut down the Strait is a big question. Jan Stuart of Credit Suisse says it would be “suicidal” for the Iranians to even try.

“Closing the Strait of Hormuz — that thing is…30 miles wide,” Stuart says. “You need a gazillion boats to literally close it off. It can’t happen.” (See: $100 Oil Is Here to Stay, but Iran Closing the Strait of Hormuz “Can’t Happen”: Stuart)

Still, Iran’s Navy has recently been conducting military exercises in the area. Some experts say the Iranians are preparing to attack oil tankers in the Strait with missiles and torpedoes from submarines. They might not shut the critical passage down but such attacks would certainly disrupt crude shipments and cause a spike in oil prices.

Whether the Iranians just bluster or actually go on the attack, we’re likely to hear more news about this critical waterway in the days and weeks ahead, and that news will have a direct impact on the global economy and how much you’re paying for products here in the U.S.

Meanwhile In TEHRAN, Iran (AP) — Iran’s defense minister warned that an Israeli attack on Iran will lead to the collapse of the Jewish state, state-run television reported Saturday, in one of the strongest statements from Iran indicating it would punish Israel should it attack Iran’s nuclear facilities.

The comments by Gen. Ahmad Vahidi on Press TV come as Israel has recently stepped up its verbal threats that it may attack Iran’s nuclear facilities. The U.S., Israel and many in the West fear that Iran is trying to build nuclear weapons while Iran insists its nuclear program is strictly for peaceful purposes such as producing energy.

Israel has pointedly not ruled out a military strike designed to cripple Iran’s nuclear program, something Vahidi warned against Saturday.

“A military attack by the Zionist regime (against Iran) will undoubtedly lead to the collapse of this regime,” he was quoted as saying. The defense minister did not say what type of action Iran would take in such a scenario.

Israeli officials say Israel must act by the summer if it wants to effectively halt Iran’s program because Tehran is moving more of its nuclear installations deep underground.

Iran has spread its nuclear facilities across the vast country and has built key portions underground to protect them from possible airstrikes.

Israel views Iran as an existential threat, citing frequent calls by President Mahmoud Ahmadinejadfor Israel’s destruction, Iran’s support for violent anti-Israel militant groups and its long range missile program.

Israel has shown in the past that it is willing to take unilateral action if it feels justified. In 1981, the Israeli air force destroyed an unfinished Iraqi nuclear reactor. And in 2007, Israeli warplanes are believed to have destroyed a target that foreign experts think was an unfinished nuclear reactor in Syria.

Iran has warned in the past that Tehran would respond to an attack against it by barraging Israel with missiles. It could also use its proxies Hezbollah and Hamas to launch rockets into the Jewish state, and cause global oil prices to spike by striking targets in the Gulf.

Iran’s arsenal already boasts missiles with a range of about 1,250 miles (2,000 kilometers) that were specifically designed for Israel and U.S. targets. The two missiles in Iran’s possession that have such a range are the Shahab-3 and the Sajjil.

Iran’s military leaders say the Persian state possesses technology to manufacture missiles with a range greater than 1,250 miles, but it doesn’t feel the need to do so.

The Revolutionary Guard, Iran’s most powerful military force which is in charge of Iran’s missile program, unveiled underground smart missile silos last year, claiming that medium- and long-range missiles stored in them are ready to launch if Iran was attacked.

The silos are widely viewed as a strategic asset for Iran in the event of a U.S. or Israeli strike on its nuclear facilities because it greatly reduces the time for Iran to respond to strikes.

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