Friday , 18 August 2017


What Happens to Oil Prices if Israel Bombs Iranian Nuclear Facilities?

We now believe that there is at least a 50% probability of Israeli airstrikes against Iranian nuclear sites… Iran has multiple retaliatory options at its disposal…[and it begs the question:] Which options would most adversely affect the price of oil? [Let’s take a look at what those options would be.] Words: 544

So said Marshall Adkins (www.raymondjames.com)  over a year ago in an article* which bears reposting. 

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited ([ ]), abridged (…) and reformatted the original article below for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

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Adkins goes on to say, in part:

Ranked by their likely impact on the oil market (from least to greatest), they are as follows:

1. Iran cuts off oil exports and launches a wave of terrorism

It’s safe to say that Iran’s oil exports (currently about 2 MMbpd) will be immediately halted in the event of war. Even without a deliberate shutdown by Iran, pipelines are liable to be damaged by bombing, and tankers would obviously not risk sailing into a war zone. . .Iranian-backed militias are ready to attack U.S. forces in Iraq and perhaps other Arab countries. Iran would also utilize Hezbollah and Hamas to attack Israel directly. Terrorist attacks of this kind would not physically disrupt oil supply, but they carry the risk of the conflict escalating, thus sharply widening the geopolitical risk premium in oil prices.

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2. Iran mines the Strait of Hormuz

The Strait of Hormuz, the sole waterway out of the Persian Gulf, is just 45 kilometers wide and is the tanker route for not only Iran but also Iraq, Saudi Arabia, Qatar, and the United Arab Emirates. With two shipping lanes just 3.2 kilometers across each, it would be quite simple for Iran to place hundreds of mines across the route, effectively bringing any shipments to a halt. This represents an immediate supply loss of roughly 15 MMbpd.

3. Iran destroys oil infrastructure around the Gulf

Remember the billowing smoke coming from Kuwaiti oilfields that Saddam Hussein’s army set on fire while retreating in 1991? Now picture this same scenario playing out again, except in every Arab country near the Persian Gulf. If you want to contemplate the nightmare scenario following airstrikes against Iran, this is it. . .Iran could retaliate by attacking producing fields, pipelines, shipping terminals (for example, Ras Tanura in Saudi Arabia), and other petroleum infrastructure across the region. The damage from such attacks could take years to repair. . .Some damage could well be permanent. In any case, the potential supply loss would be astronomical.

There are basically two roads ahead for the Iranian nuclear crisis.

1. A diplomatic solution [seems unlikely].

2. Military action – likely Israeli airstrikes – against Iranian nuclear sites [in the weeks or months ahead. This would] lead to higher oil prices — potentially much higher.

For now the oil market is largely ignoring Iran but if war becomes inevitable then oil prices will go really high, really fast.

*http://seekingalpha.com/instablog/378432-bill-paul/30265-raymond-james-says-oil-markets-ignoring-big-iranian-war-risk