Iran’s War Games Raise Oil Prices
Iran military. (image: payvand.com)
To demonstrate that its bite is as fierce as its bark, Iran has begun five days of large-scale military exercises meant to protect its nuclear sites from attack, the BBC reported on Monday. The exercises, held by the Revolutionary Guard and the Iranian military across an area of 230,000 square miles, are surely intended to agitate an Israel already on high alert over Iran’s uranium-enrichment program and the threat of nuclear attack. While Iran has argued rather unconvincingly that its nuclear program is for peaceful purposes, its war games have led not only to an uneasy Middle East, but also to a slightly higher price of crude oil, which rose on Monday to $79.52.
According to the morbid logic of mutually assured destruction, Iran might stave off a preemptive Israeli strike against its nuclear facilities by demonstrating its own military might. Thus the testosteronal rhetoric of Revolutionary Guard Commander Amir Ali Hajizadeh, who told Iran’s Fars news agency that in the event of an Israeli attack, “Their F-15 and F-16 fighters will be trapped by our air defense forces and will be annihilated.” Still, with its stormy proclamations and general recalcitrance, the country risks upsetting the UN Security Council, which—after months of failed proposals and appeals—seems to be approaching the limit of its patience.
Most recently, the International Atomic Energy Agency (the UN’s nuclear watchdog) proposed that 70% of Iran’s low-enriched uranium be sent to Russia and France, where it would be processed into fuel rods and returned to a research reactor in Tehran. This way, Iran would have its nuclear energy without being able to process enough uranium to make a bomb. Unsurprisingly, Iran has turned down the offer, saying that it seeks further guarantees, while the UN has decided to enforce three rounds of new sanctions.
According to Haaretz.com, heightened tensions in the Middle East may have had a small effect on crude oil prices. By late morning Monday, benchmark crude for December delivery gained $2.05 to reach $79.52 a barrel on the New York Mercantile Exchange (before later retreating on the dollar’s strength to $77.56). Still, while analysts have shown concern over the sabre-rattling in Iran, they don’t expect oil supplies to be much affected. Many agree that it’s unlikely that the price of crude will surpass $80 a barrel, given the unusually high global distillate supply. “Price rises will be constrained because supply is ample and refineries are cutting runs significantly,” said Phil Flynn, vice president of research at PFGBest in Chicago, as reported by Bloomberg. “There will be a lot of resistance as we near $80.”
Moreover, even as a sinking dollar and a persistent optimism concerning the global economy keeps prices going up, there is a limit to how high crude oil might sell for, given the current circumstances. “We’re floating around once again on what the dollar is doing, “said John Kilduff, a partner at Earth Capital. “We’ve priced in about as much hopefulness about the economy as possible. Once we get close to $80, the reality of the present situation pulls prices lower.”
Conflicting Reports on Iran’s Occupation of Iraqi Oil Well | HeatingOil.com says: says:
[...] This is not the first time that Iranian belligerence has affected oil prices. In late November Iran flexed its military might with five days of highly public military exercises, which resulted in increased crude prices. [...]