By MoneyMorning.com.au
There is plenty to say about oil right now.
After falling for 10 months, Brent Crude Oil has jumped 15% in the last few months.
The ‘Iran situation’ has been the tipping point, sending oil prices soaring. Iran was threatening to close the busiest oil-shipping waterway in the world, which would send oil prices above $200. But the real reason prices has climbed is that sanctions on Iran are biting, and they are exporting less oil. This leaves a gap in the market – which no one else can fill.
It hasn’t just been Iran’s exports falling. Oil production from other mid-significant exporters, like Yemen, Syria, and Sudan, have their own problems too. The resulting drop in oil production just makes that gap in the oil market even bigger, and it is sending oil prices still higher.
Israel vs Iran?
Now the oil market has real problems.
Israel seems to be readying to attack Iran:
‘Israeli political sources believe that Prime Minister Benjamin Netanyahu a majority Cabinet support Israeli military action against Iran without American approval.’
Let’s just say Israel and Iran don’t see eye to eye.
In particular, Iran would like a nuclear weapon. Israel would prefer that it didn’t have one.
Years of sanctions to limit Iran’s progress towards building a nuke have failed. Israel thinks Iran is close, and is getting nervous. Obama recently politely suggested Israel holds off on attacking Iran until at least after the US elections.
Reason being he knows that conflict in the Middle East will send oil, and petroleum prices, soaring – and therefore Obama’s chance of re-election plummeting with it.
A conflict around Israel and Iran would cripple oil exports from Iran, leaving a truly unfillable hole in the oil market. If conflict also affected passage of ships through the Persian Gulf, exports from Saudi Arabia, Bahrain, Kuwait and the Emirates would drop overnight. Then the oil market – and hundreds of millions of innocent people in the region – would have real problems.
The oil market was already at a tipping point. Israel’s majority vote to strike Iran is all it takes to tip this over the edge, and trigger the next leg in oil’s rally.
The world’s economy runs on oil. These events would be disastrous to any economic recovery, and cast a serious threat to the market right now.
I’m surprised to see the ASX200 up today. The risk level of the market has jumped, but you wouldn’t know it from stock prices. Investors would be smart to be wary right now.
Dr. Alex Cowie
Editor, Diggers & Drillers
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