War Between Saudi Arabia And Iran Could Send Oil Prices To $250
Submitted by James Stafford via OilPrice.com,
The rift between Saudi Arabia and Iran has quickly ballooned into the worst conflict in decades between the two countries.
The back-and-forth escalation quickly turned the simmering tension into an overt struggle for power in the Middle East. First, the execution of a prominent Shiite cleric prompted protestors to set fire to the Saudi embassy in Tehran. Saudi Arabia cut off diplomatic relations and kicked out Iranian diplomatic personnel. Tehran banned Saudi goods from entering Iran. Worst of all, Iran blames Saudi Arabia for an airstrike that landed near its embassy in Yemen.
Saudi Arabia’s Sunni allies in the Arabian Peninsula largely followed suit by downgrading diplomatic ties with Iran. However, recognizing the dire implications of a major conflict in the region, most of Saudi Arabia’s Gulf State allies did not go as far as to entirely sever diplomatic relations, as Saudi Arabia did. Bahrain, the one nation most closely allied with Riyadh, was the only one to take such a step.
Many of them are concerned about a descent to further instability. Nations like Kuwait and Qatar have trade links with Iran, plus Shiite populations of their own. Crucially, Qatar also shares a maritime border with Iran as well as access to massive natural gas reserves in the Persian Gulf. These countries are trying to split the difference between the two belligerent nations in the Middle East. "The Saudis are on the phone lobbying countries very hard to break off ties with Iran but most Gulf states are trying to find some common ground," a diplomat from an Arab country told Reuters. "The problem is, common ground between everyone in this region is shrinking."
The effect from the brewing conflict on oil is murky, but for now it is not having a bullish impact. In the past, geopolitical tension in the Middle East, especially involving large oil producers, would add a few dollars to the price of oil. This risk premium captured the possibility of a supply disruption into the price of a barrel of crude. However, recent events barely registered in oil trading. That is because the global glut in oil supplies loom larger than any potential for a supply disruption. Oil dropped to nearly $30 per barrel on January 12 and oil speculators are not paying any attention to the tension in the Middle East.
Also, the conflict could simply manifest itself in an intensified battle for oil market share. Iran has put forth aggressive goals to ramp up oil production in the near-term. And Saudi Arabia continues to produce well in excess of 10 million barrels per day while discounting its crude in several key markets, particularly in Europe in order to box out Iran.
But what if the current “Cold War” between Saudi Arabia and Iran turned hot?
Saudi Arabia has a variety of reasons to not back down, not the least of which is the very real sense of being besieged on multiple fronts. An article in The New Statesman by former British Ambassador to Saudi Arabia, John Jenkins, clearly laid out the threats that Saudi Arabia sees around every corner: extremists at home; a growing Iran; toppled allies from the Arab Spring; low oil prices; and a fractured relationship with the United States. The nuclear deal between Iran and the West was confirmation on the feeling in Riyadh that it is becoming increasingly insecure.
Already the two rivals have engaged in proxy battles in Yemen and Syria, supporting opposite sides in those wars. A full on direct military confrontation would be something entirely different, however. It would have catastrophic consequences for oil markets, even when taking into account the current supply overhang. Dr. Hossein Askari, a professor at The George Washington University, told Oil & Gas 360 that a war between the two countries could lead to supply disruptions, with predictable impacts on prices.
“If there is a war confronting Iran and Saudi Arabia, oil could overnight go to above $250, but decline [back] down to the $100 level,” said Askari. “If they attack each other’s loading facilities, then we could see oil spike to over $500 and stay around there for some time depending on the extent of the damage.”
While not impossible, war is speculative at this point. Also, $250 and $500 per barrel are numbers pulled out of thin air, and may seem a bit sensationalist. But despite the glut in global oil production – somewhere around 1 mb/d – the margin from excess to shortage is thinner than most people think. OPEC is producing flat out and spare capacity is actually remarkably low right now. The EIA estimated that OPEC spare capacity stood at just 1.25 mb/d in the third quarter of 2015, the lowest level since 2008.
As a result, even though it remains a remote possibility, direct military confrontation between Saudi Arabia and Iran could well put oil back into triple-digit territory in short order.
(21 votes)
»
- Login or register to post comments
- Printer-friendly version
- Send to friend
- advertisements -
What if they pretend to have a war, just to boost their oil income.
Operation Arabian Bacon.
I am sure there is a think tank somewhere working on how to start this conflict
The plan was worked out months ago, maybe years ago when they saw that consumption was falling faster than production.
In other news, war between China and Taiwan could sending price for cheap electronic gadget to soar... but it won't.
What a bunch of bull, war between Saudi and Iran could send oil to $40 a barrel. Way more supply than demand.
The two American boats caught in Iranian waters were there to produce a False Flag event in favour of Saudi Arabia and the USSA.
This is pure bollocks, oil would possibly spike for a bit but then it would quickly fall back - both sides would pump as much as possible to finance the war and hurt each other. Look at the Iran Iraq war and the oil price then.
Iran might finally get their nukes.. courtesy of us delivered by your friendly neighborhood Saudi-man.
"Operation Agrabharainian"
Iran is alleged to be the Saudi counter weight. But they lack one thing and will not risk all out war with the Saudis. Iran has far more natural resources, not being in the middle of a desert, and have used this to remain independent from the west. In most every way they should be able to dominate Riyadh.
Truth be told they have long been at war through their various proxies. But to escalate it to a direct battle is futile for Iran, simply because even if they succeed in overrunning Riyadh, they'd just get NUKED!
The Saudis have the bomb courtesy Pakistan, Iran does not, YET! Obama's workin' on it...
Oil prices may spike, but in a world economy chocked with excess, declining demand, slipping toward crashing demand, sustained $100+ oil is not likely without all out war.
Actually, this article is spot on. Oil is a flowing commodity, not a stockpiled one. Reserve pumping capacity is small, and demand is relatively inelastic. War itself would scare a few speculators, but if they actually successfully targeted each other's production and loading facilities, it would interrupt flow.....and that is what the article said would cause price spikes. Very interesting times we live in.
Have a look at a map and where the refineries are. All within easy range of missiles and the iranians have a lot of them. Also tankers would be targeted and stop saling as insurance would be withheld. Oil trade would stop.
Or, the American boats were there to make it LOOK like the US was trying to do something in order to calm the Saudis down because there are threats flying around about letting the US burn.
Yeah, for now. But wouldn't that change if the oil facilities were damaged, preventing exports for a month or two?
Hopefully they will have realized by now that conflict in the region only seems to make Iran stronger.
"I am sure there is a think tank somewhere working on how to start this conflict"
https://www.youtube.com/watch?v=TlIEIPq8GF4
They have all the plans made already, all it is, is executing them. I'm just waiting for "iran" to bomb a saudi port, or sinl a half dozen tankers or something, and kill a couple of birds with one stone.
Regarding this naval fiasco. Iran, like Russia, AGAIN, exercised restraint. I think it's pretty clear that the West, and their friends are just waiting for Iran or Russia to take the bait on something, and no matter how seemingly innocuous it will be, it will be an excuse for war.
The real concern is that, the longer it takes to start a war, likely the worse the catalyst for war will be ( i.e. we move from a small incident, to a massive false flag ).
More like Arabian Pastrami. Don't think those guys eat a lot of pork ....
I am sure a lot of people that depend on oil revenue are trying to figure out a way to start a war and not get blamed. Including but not limited to: Us Oil Execs, Russian Oil Execs, Suadi Royals, Iranain Clerics, All Opec Leadership, England / Finland (North Sea producers). The list could on and on.
https://www.youtube.com/watch?v=R5SRqVSwv9E
Royal family do.My brother in law was a classmate of of Price turki Faisal.He ate prokchops as if they were going out of style.
OR
http://www.telegraph.co.uk/finance/oilprices/12094394/Oil-price-could-fall-to-10-a-barrel-warn-investment-bank-bears.html
Well, some quick Googling shows that as of 2014, Saudi+Iran produce about 20% of the world's oil output. If there were a war, we could expect their output to drop 10% easily, which would cover the drop in oil consumption in the last 4 weeks.
Basically, they are going to have to start nuking each other's oil fields to hit the asinine targets in the article, barring further economic collapse in the meantime.
You forget this is called a rational thought process. I agree but the algo's may not.
http://www.bizjournals.com/pittsburgh/blog/energy/2016/01/rig-count-fall...
Yeah and then shale comes back full capacity and drops it to $50 within 6 months.
Your perpetual motion machine seems to lose money with each pump; perhaps shale could gear itself better and weather the cycles, but this last slaughter really was about ridiculous overcapacity fueled by funny money and OPEC's implicit put getting taken away like Charlie Brown's football.
If Arabia and Iran are offline, the next pump would be driven by demand. It will be easy to bring back online because the infrastructure is already there.
Sorry to kill another peak oiler's doomboner.
That and the fact that the House of Saud doesn't have any faith that Obozo will support them in a conflict means they won't go to war at least until he is out of office.
I'm sure it is not lost on the Saudis that Obama has a Shia middle name- Hussein.
If you're gonna try to stick it where the Sunni don't shine, look out for Shiite.
No , no. The concept sounds about right. Actually very good. Let them fight each other and Saud preferrably crushed as thanks for all their evil machinations. And then a very ice roller-coaster cycle with enormous speculative profits.
Waddarya waitin' for. Get it on!
look people...
how do those two fuckin' countries pay for _anything_, let alone funding a war?
they do it by _selling oil_
if you think that oil supplies are going to dry up because SA and Iran go to war with each other, you're sadly mistaken... if anything, we'll see even more supply as they try to sell every barrel they can to pay for wartime footing and the price will drop further still
Not if one of them is wiped out. Like ...terminated with extreme prejudice. Gone. They won´t be putting out anything , at all.
Do you know that scientifically speaking the neutron bomb works best in weather conditions devoid of humidity - fog,rain,mist,snow.
It´s da bomb for a desert - so to speak.
Think about it and you will arrive at the same inevitable conclusion. It´s either us or them...
Fight Global Terror: Ride a Bike
If if's and buts where candy and nuts....
Whatever helps you sleep at night oil shill.
Not going to happen.
Yeah... but... "oil has no intrinsic value".
I put some intrinsic gas in my car and it wouldn't start.
Eat lots of asperges and then pee in the tank. It should fire right up.
not worth the smell.
Perfect solution for Dieselgate! Uric acid.
Sounds like somebody is deep underwater in a long position talking their book.
Sounds like somebody is deep underwater in a long position talking their book.
This is what I was thinking, a neocon promoting moar war.
exactly my thought...
While not impossible, war is speculative at this point. Also, $250 and $500 per barrel are numbers pulled out of thin air, and may seem a bit sensationalist.
No kidding.
Like Mike Baloney and his $20,000 gold prediction. Maloney is a precious metals dealer.
How speculative is something for which plans have been made for decades?
"Simple coincidence," says the coincidence theorist. ;)