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Joe S.
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QUOTE
Strike on Iran Would Roil Oil Markets, Experts Say
Price Hits Record Close; U.S. Tightens Sanctions
By Steven Mufson
Washington Post Staff Writer
Friday, October 26, 2007; A01
A U.S. military strike against Iran would have dire consequences in
petroleum markets, say a variety of oil industry experts, many of whom think
the prospect of pandemonium in those markets makes U.S. military action
unlikely despite escalating economic sanctions imposed by the Bush
administration.
The small amount of excess oil production capacity worldwide would provide
an insufficient cushion if armed conflict disrupted supplies, oil experts
say, and petroleum prices would skyrocket. Moreover, a wounded or angry Iran
could easily retaliate against oil facilities from southern Iraq to the
Strait of Hormuz.
Oil prices closed at a record $90.46 a barrel in New York yesterday as the
Bush administration tightened U.S. financial sanctions on Iran over its
alleged support for terrorism and issued new warnings about Tehran's nuclear
program. Tension between Turkey and Kurds in northern Iraq, and fresh doubts
about OPEC output levels also helped drive the price of oil up $3.36 a
barrel, or 3.8 percent.
Although the Bush administration is not openly threatening a military strike
against Iran, the president recently spoke of needing to avoid "World War
III," and Vice President Cheney said that the United States would "not stand
by" while Iran continued its nuclear program. "We will not allow Iran to
have a nuclear weapon," he said.
Oil traders said that even if the chances of military conflict with Iran
were small, the huge run-up in oil prices that would result encourages some
speculators and investment funds to bid up the price of oil, adding a
premium of $3 to $15 a barrel.
"It will be chaos. . . . I can't really see it," said Abdulsamad al-Awadi,
an oil trading consultant and former executive at Kuwait Petroleum. "Having
been in the marketplace for almost 30 years, I can't see a scenario for it,
or precautionary measures" that oil companies could take. "There are no
precautionary measures."
"If war breaks out, anticipate that all hell will break loose in the oil
markets," said Robin West, chairman of PFC Energy, a District oil consulting
firm.
"If it's a clinical strike like the one that Israel carried out on the
Syrian installations and no one admitted to doing it, you'd have a fierce
reaction from Iran, but it would probably die down," said Leo Drollas,
deputy executive director and chief economist of the Center for Global
Energy Studies, a London think tank founded by former Saudi oil minister
Ahmed Zaki Yamani. "If it were a botched job with lots of targets and
civilians dying and Iranians retaliating . . . it could escalate and the
price of oil could shoot up to God knows where."
Ominous warnings about oil prices have preceded other conflicts in the
oil-rich Persian Gulf, and spikes in crude prices proved fleeting in the
past.
But during earlier conflicts in the region -- the Iran-Iraq war in the
1980s, the Gulf War in 1991 and even the 2003 U.S.-led invasion of Iraq --
the world's oil-exporting countries had enough capacity to make up for the
disruption in oil exports. Not so this time. Demand has grown, and output
has fallen in many oil-producing countries.
Saudi Arabia, which accounts for about 8.7 million barrels a day, produces
almost all of the world's excess oil and is capable of boosting output by
about 2.5 million barrels a day, Drollas said. Iran produces 2.5 million
barrels a day.
Moreover, while some members of the Organization of the Petroleum Exporting
Countries fear that high prices would hurt oil demand and undercut long-term
revenue, others see no need to boost output. In a meeting with reporters in
Caracas yesterday, Venezuelan energy minister Rafael Ramirez said that the
market is "well supplied." Earlier, Venezuelan President Hugo Ch¿vez said
he expected oil prices to climb higher.
"Can the world do without Iranian oil exports at the present time? The
answer is: just," said a senior planning executive at a major European oil
company who spoke on condition of anonymity because the company has a policy
not to publicly discuss oil prices. "There is enough spare capacity to
offset Iranian exports, but it would be very tight. If every spigot were
open everywhere, including Saudi Arabia, that should just about cover it.
But it's not comfortable."
"That's just arithmetic," he added, "but is it all as simple as that? The
question is: What would the Iranians do in retaliation?"
He and others noted that Iran would not need to attack well-guarded
facilities in places like Saudi Arabia or harass tankers in the
U.S.-patrolled Strait of Hormuz, at the head of the Persian Gulf. It could
simply collaborate with Shiite forces in southern Iraq to cut off Iraq's
roughly 1.7 million barrels a day of production, further weakening its
neighbor while driving up prices for its own exports.
"Certainly when you lose 2.5 million barrels a day of Iranian production,
which is the most likely case scenario, that will literally just make the
market go berserk," al-Awadi said. Asked whether the companies he worked
with had contingency plans, he said, "The oil industry does not have
contingency plans. We are not military people."
The senior executive from the European oil company said that his firm did
not have contingency plans, either. "You come to a point where you say it's
indefinable," he said. "You sit around and ask, 'What would we as a company
do differently?' The answer is nothing. You deal with it at the time."
Most industrialized nations do have contingency plans; they have strategic
petroleum reserves that could be tapped during an emergency. The U.S.
Strategic Petroleum Reserve, which was tapped during Operation Desert Storm
in 1991 and after Hurricane Katrina in 2005, has nearly 700 million barrels,
enough to cover about 68 days of U.S. oil imports from all sources.
Yesterday, Secretary of State Condoleezza Rice said that Bush is "committed
to a diplomatic course on Iran," but she added that U.S. patience is "not
limitless, and allies need to know that."
"These crises have a habit of bursting on the scene and leading to
unforeseen places," Drollas said. "Everyone wants it not to happen, but it's
like a crash happening slowly. You can see the two cars coming toward each
other. . . . There's an inevitability about it."
http://www.washingtonpost.com/wp-dyn/content/article/2007/10/25/AR2007102502840.html?hpid=topnews
END QUOTE
Strike on Iran Would Roil Oil Markets, Experts Say
Price Hits Record Close; U.S. Tightens Sanctions
By Steven Mufson
Washington Post Staff Writer
Friday, October 26, 2007; A01
A U.S. military strike against Iran would have dire consequences in
petroleum markets, say a variety of oil industry experts, many of whom think
the prospect of pandemonium in those markets makes U.S. military action
unlikely despite escalating economic sanctions imposed by the Bush
administration.
The small amount of excess oil production capacity worldwide would provide
an insufficient cushion if armed conflict disrupted supplies, oil experts
say, and petroleum prices would skyrocket. Moreover, a wounded or angry Iran
could easily retaliate against oil facilities from southern Iraq to the
Strait of Hormuz.
Oil prices closed at a record $90.46 a barrel in New York yesterday as the
Bush administration tightened U.S. financial sanctions on Iran over its
alleged support for terrorism and issued new warnings about Tehran's nuclear
program. Tension between Turkey and Kurds in northern Iraq, and fresh doubts
about OPEC output levels also helped drive the price of oil up $3.36 a
barrel, or 3.8 percent.
Although the Bush administration is not openly threatening a military strike
against Iran, the president recently spoke of needing to avoid "World War
III," and Vice President Cheney said that the United States would "not stand
by" while Iran continued its nuclear program. "We will not allow Iran to
have a nuclear weapon," he said.
Oil traders said that even if the chances of military conflict with Iran
were small, the huge run-up in oil prices that would result encourages some
speculators and investment funds to bid up the price of oil, adding a
premium of $3 to $15 a barrel.
"It will be chaos. . . . I can't really see it," said Abdulsamad al-Awadi,
an oil trading consultant and former executive at Kuwait Petroleum. "Having
been in the marketplace for almost 30 years, I can't see a scenario for it,
or precautionary measures" that oil companies could take. "There are no
precautionary measures."
"If war breaks out, anticipate that all hell will break loose in the oil
markets," said Robin West, chairman of PFC Energy, a District oil consulting
firm.
"If it's a clinical strike like the one that Israel carried out on the
Syrian installations and no one admitted to doing it, you'd have a fierce
reaction from Iran, but it would probably die down," said Leo Drollas,
deputy executive director and chief economist of the Center for Global
Energy Studies, a London think tank founded by former Saudi oil minister
Ahmed Zaki Yamani. "If it were a botched job with lots of targets and
civilians dying and Iranians retaliating . . . it could escalate and the
price of oil could shoot up to God knows where."
Ominous warnings about oil prices have preceded other conflicts in the
oil-rich Persian Gulf, and spikes in crude prices proved fleeting in the
past.
But during earlier conflicts in the region -- the Iran-Iraq war in the
1980s, the Gulf War in 1991 and even the 2003 U.S.-led invasion of Iraq --
the world's oil-exporting countries had enough capacity to make up for the
disruption in oil exports. Not so this time. Demand has grown, and output
has fallen in many oil-producing countries.
Saudi Arabia, which accounts for about 8.7 million barrels a day, produces
almost all of the world's excess oil and is capable of boosting output by
about 2.5 million barrels a day, Drollas said. Iran produces 2.5 million
barrels a day.
Moreover, while some members of the Organization of the Petroleum Exporting
Countries fear that high prices would hurt oil demand and undercut long-term
revenue, others see no need to boost output. In a meeting with reporters in
Caracas yesterday, Venezuelan energy minister Rafael Ramirez said that the
market is "well supplied." Earlier, Venezuelan President Hugo Ch¿vez said
he expected oil prices to climb higher.
"Can the world do without Iranian oil exports at the present time? The
answer is: just," said a senior planning executive at a major European oil
company who spoke on condition of anonymity because the company has a policy
not to publicly discuss oil prices. "There is enough spare capacity to
offset Iranian exports, but it would be very tight. If every spigot were
open everywhere, including Saudi Arabia, that should just about cover it.
But it's not comfortable."
"That's just arithmetic," he added, "but is it all as simple as that? The
question is: What would the Iranians do in retaliation?"
He and others noted that Iran would not need to attack well-guarded
facilities in places like Saudi Arabia or harass tankers in the
U.S.-patrolled Strait of Hormuz, at the head of the Persian Gulf. It could
simply collaborate with Shiite forces in southern Iraq to cut off Iraq's
roughly 1.7 million barrels a day of production, further weakening its
neighbor while driving up prices for its own exports.
"Certainly when you lose 2.5 million barrels a day of Iranian production,
which is the most likely case scenario, that will literally just make the
market go berserk," al-Awadi said. Asked whether the companies he worked
with had contingency plans, he said, "The oil industry does not have
contingency plans. We are not military people."
The senior executive from the European oil company said that his firm did
not have contingency plans, either. "You come to a point where you say it's
indefinable," he said. "You sit around and ask, 'What would we as a company
do differently?' The answer is nothing. You deal with it at the time."
Most industrialized nations do have contingency plans; they have strategic
petroleum reserves that could be tapped during an emergency. The U.S.
Strategic Petroleum Reserve, which was tapped during Operation Desert Storm
in 1991 and after Hurricane Katrina in 2005, has nearly 700 million barrels,
enough to cover about 68 days of U.S. oil imports from all sources.
Yesterday, Secretary of State Condoleezza Rice said that Bush is "committed
to a diplomatic course on Iran," but she added that U.S. patience is "not
limitless, and allies need to know that."
"These crises have a habit of bursting on the scene and leading to
unforeseen places," Drollas said. "Everyone wants it not to happen, but it's
like a crash happening slowly. You can see the two cars coming toward each
other. . . . There's an inevitability about it."
http://www.washingtonpost.com/wp-dyn/content/article/2007/10/25/AR2007102502840.html?hpid=topnews
END QUOTE
