Iran is Now a Full-Blown Crisis
by Dr. Kent Moors
Dear Oil & Energy Investor,
Just when it looked like we could take a breather from the Strait of Hormuz, all attention is back on Iran.
There are three reasons for this - all happening within the last 24 hours.
1.First was Tehran's successful launch of a satellite, viewed by all in the region as being for military intelligence.
2.Second, in his toughest talk to date, Iranian Supreme Leader Ayatollah Ali Khamenei voiced defiance to Western sanctions and pledged open retaliation if they are instituted.
3.Finally, yesterday morning, U.S. Secretary of Defense Leon Panetta expressed concern that, if matters continue, Israel could attempt an air strike takeout of Iranian nuclear facilities within a month. Iran has been frantically moving essential components of its nuclear program underground to withstand such an attack.
All of this is, once again, leading to a rise in crude oil prices.
This morning, crude had been rising three times quicker in Europe (Brent benchmark rates) than on the NYMEX (West Texas Intermediate, or WTI, benchmark rates).
The real focus is on Brussels.
The E.U. decision to stop importing Iranian crude starting July 1 will cripple any chance Tehran has to combat escalating economic and political turmoil at home. Yet Khamenei's defiant tone during his Friday prayer meeting speech indicates that Iran's religious leadership will not wait for the system to unravel.
And that makes this both a full-blown and an intensifying crisis.
So what's being done?
Washington has little effective leverage, save its ability to temper an immediate escalation by Israel (leverage the U.S. can still apply, at least for the moment). It also has some indirect influence on what the E.U. does.
Meanwhile, Saudi Arabia also is a wild card. It will not tolerate a nuclear Iran.
And yes, there are ample indications that American and Israeli intelligence have concluded Iran will achieve the ability to develop nuclear weapons in the next 18 to 24 months.
Some elements of that process will be available earlier, but remember: A weapon is of little value unless it can be controlled and delivered. The logistical and infrastructure considerations need to be in place first.
Yet with such an inevitable conclusion staring them in the face, the West has decided to embark on a risky path...
The target here is not the nuclear project at all (over which there is less and less outside control). Instead, it has become about creating massive domestic instability to bring down a regime.
Now, this is not about ending the theocracy. With or without Mahmoud Ahmadinejad as president or Ali Khamenei as supreme leader, Iran will remain a Shiite-dominated country. Religion decisively controls politics, and the clergy oversees the society.
The West is seeking a more moderate application of what will remain the Iranian cultural reality.
However, as the brinksmanship intensifies, so will the price of crude oil. Tehran, in this dangerous game of international chicken, really only has one card to play - the Strait of Hormuz.
There has been much misinformation circulated about the strait. Here are the facts.
On any given day, 18% to 20% of the world's crude oil passes through it. The narrowest point measures barely two miles across.
Of greater significance, though, is the fact that most of the world's current excess capacity is Saudi. (This is the oil that can be brought to market quickly to offset unusual demand spikes or cuts in supply elsewhere.) And, unfortunately, Saudi volume must find its way through the same little strait.
If we're unable to access the Saudi excess, that loss guarantees the global market will be out of balance. That will intensify the price upsurge - an upsurge that is already happening.
Now for the question I'm being asked several times a day in media interviews...
Just How Bad Can It Get?
If Iran closes the Strait of Hormuz, crude oil prices will pop by between $30 and $40 a barrel... within hours.
AI
