Fear of war drives gas prices up
Published: 22 February, 2012, 21:46
Reuters / Mike Blake
Tensions between America and Iran have yielded global concern, the deployment of thousands of US troops and bickering from foreign policy experts around the world.
The latest result of the worsening relationships is something a bit more crude, though.
As Iran and America come closer to war, oil prices for US consumers have skyrocketed over fear that exports will seize overseas. Oil prices in America reached a nine-month high this week with the cost of a barrel clocking in at over $106 a piece. Financial speculation over how sanctions on Iran or a blockade of exports initiated by either party could disrupt oil delivery to the States in largely to blame for the increase. That reasoning can barely be rationalized, however, given that the US relies little on Persian Gulf oil domestically.
"People are just scared about Iran," independent analyst and trader Stephen Schork tells the Associated Press. "They're concerned about supply."
In 2011, China was actually the largest importer of Iranian oil. Despite fears that a blockade on Iran would impact the United States’ supply of resources substantially, the truth is that the US is actually sitting on a surplus of oil right now. A fifth of the world’s oil might go in and out of the Persian Gulf’s Strait of Hormuz, but only a very small percentage of that ends up in America.
In actuality, only a small percentage of America’s crude oil comes from Iran and its surrounding area. The US was importing upwards of 12 million barrels of oil a day in 2010, with as much of a third of that coming right from North America. Not only does the US get a fair share of its oil domestically, but the countries of Canada and Mexico top the list of nations that export the most crude to the United States.
By comparison, Iran only generates a total of around 4 million barrels of crude a day, roughly what the US gets from its neighbors to the north and south.
With rumors of war continuing to carry, however, speculation is causing prices to only surge in the States.
Iranian General Mohammed Hejazi said this week that his country will halt oil distribution to Britain and France this year, although neither of those nations substantially rely on Iran for resources. With a stoppage of exports to the US next on the list of Iranian-imposed sanctions, speculators in America say prices will continue to rise, despite an abundance of oil on the ready in the US.
"Speculation is now part of the DNA of oil prices. You cannot separate the two anymore. There is no demarcation," Oppenheimer & Co analyst Fadel Gheit tells McClatchy News. "I still remain convinced oil prices are inflated."
Carl Larry of Oil Outlooks and Opinions adds in a recent report that if Iran stops exporting altogether, crude market prices are estimated to hit around $130 a barrel in the immediate aftermath. Although the response would be the result of fear-induced speculation, the consequences could be catastrophic as the western world continues to teeter towards default.
"It is important to emphasize that a spike in oil prices would most likely inflict damage on the economic recovery,” Goldman Sachs say in their own just-published report. They expect crude to rise to $123.50 a barrel within 2012.
If the US does see a spike, it won’t be good for just the average consumers of crude, either. President Obama, take note: incumbent candidates have lost the presidential election during the last five times oil prices surged in the States.