SocGen Lays It Out: "EU Iran Embargo: Brent $125-150. Straits Of Hormuz Shut: $150-200"

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Previously we heard Pimco's thoughts on the matter of an Iranian escalation with "Pimco's 4 "Iran Invasion" Oil Price Scenarios: From $140 To "Doomsday"", now it is the turn of SocGen's Michael Wittner to take a more nuanced approach adapting to the times, with an analysis of what happens under two scenarios - 1) a full blown EU embargo (which contrary to what some may think is coming far sooner than generally expected), and the logical aftermath: 2) a complete closure of the Straits. The forecast is as follows: 1) "Scenario 1: EU enacts a full ban on 0.6 Mb/d of imports of Iranian crude. In this scenario, we would expect Brent crude prices to surge into the $125-150 range." 2) "Scenario 2: Iran shuts down the Straits of Hormuz, disrupting 15 Mb/d of crude flows. In this scenario, we would expect Brent prices to spike into the $150-200 range for a limited time period." The consequences of even just scenario 1 is rather dramatic: while the adverse impact on the US economy will be substantial, it would be the debt-funded wealth transfer out of Europe into Saudi Arabia that would be the most notable aftermath. And if there is one thing an already austere Europe will be crippled by, is the price of a gallon of gas entering the double digits. And then there are the considerations of who benefits from an Iranian supply deterioration: because Europe's loss is someone else's gain. And with 1.5 million of the 2.4 Mb/d in output already going to Asia (China, India, Japan and South Korea) it is pretty clear that China will be more than glad to take away all the production that Europe decides it does not need (which would amount to just 0.8 Mb/d anyway).

SocGen's situation summary:

  • Scenario 1: EU enacts a full ban on 0.6 Mb/d of imports of Iranian crude.
  • In this scenario, we would expect Brent crude prices to surge into the $125-150 range.
  • The extent of the bullish impact will depend on the terms of the actual EU embargo, including how quickly it will be phased in. Another important variable will be how much Iranian crude is cut by non-EU countries, such as Japan and S. Korea, as a result of US pressure. This will determine how much Iranian crude has to be replaced by Saudi Arabia, and how much spare capacity Saudi Arabia has remaining after it increases output. Lower Saudi spare capacity equals higher prices. An EU embargo would possibly prompt an IEA strategic release. The price surge would dampen economic and oil demand growth.
  • An EU embargo is considered likely, especially after the EU reached an agreement in principle on an embargo on 4 January. When it is announced, depending on the timing and details, we may revise our base case oil price forecast upward. Our current Brent crude price forecast for 2012 is $110.
  • Scenario 2: Iran shuts down the Straits of Hormuz, disrupting 15 Mb/d of crude flows.
  • In this scenario, we would expect Brent prices to spike into the $150-200 range for a limited time period.
  • We believe it would be relatively easy for Iran to shut down the Straits of Hormuz. A credible threat from missiles, mines, or fast attack boats is all it would take for tanker insurers to stop coverage, which would halt tanker traffic. However, we believe that Iran would not be able to keep the Straits shut for longer than two weeks, due to a US-led military response. The disruption would definitely result in an IEA strategic release. The severe price spike would sharply hurt economic and oil demand growth, and from that standpoint, be self-correcting.
  • A Straits of Hormuz shutdown is not likely. We estimate the probability of this very high impact event at 5%. Although Iran may like the idea of retaliation in order to hurt its enemies, by halting its oil export revenues, it would hurt itself even more. Moreover, Iran would do this at the cost of provoking a military response that could destroy much of its military and perhaps even its nuclear program.

A quick summary of who are the main export partners of Iran crude:

Since early November, geopolitical risk related to Iran has re-emerged as one of the factors supporting prices in the oil complex. More to the point, the markets have become concerned about the possibility of a partial disruption to Iran’s 2.4 Mb/d of medium and heavy sour crude exports (as detailed in the table below). In addition, the markets are also thinking about the small probability but very high impact scenario where Iran shuts down the Straits of Hormuz, which would halt flows of 15 Mb/d of crude and a significant amount of NGLs, refined products and LNG.

The key developments since November have been an important IAEA report on Iran’s nuclear program, moves by the US and EU to impose sanctions on the Central Bank of Iran and on the oil sector, and Iranian military exercises in the Persian Gulf.

 

  • The escalation of the issue for the oil markets began ahead of the widely anticipated November 8 International Atomic Energy Agency report on Iran. This report contained much more evidence than previously published which strongly indicated the military nature of Iran’s nuclear program (although the report stopped short of formally reaching that conclusion - a step with diplomatic repercussions). Before and after the IAEA report, there was much discussion about an Israeli and/or American military response to Iran’s nuclear program.
  • In early December, the EU began to consider a ban on imports of Iranian crude (more on this below).
  • In late December, Iran conducted ten days of naval and military exercises in the Persian Gulf and the Straits of Hormuz. Iran repeated its oft-stated threats to close the Straits of Hormuz. Both Iranian and Western naval forces have conducted exercises in the PG many times before: Iran practices closing down the Straits of Hormuz and the Western allies practice reopening it. However, it seems more serious this time because of the context: Iran’s steady progress towards a nuclear weapon capability and – in response – moves to increasingly tough sanctions by the US and EU, which are clearly targeting oil.
  • On December 31, President Obama signed new US sanctions into law. The sanctions say that any financial institution that does business with the Central Bank of Iran cannot do business with the US financial system. Because the Central Bank receives payments for almost all of Iran’s crude export sales, this directly targets Iran’s oil sector and revenues, which accounts for 60% of its economy. In effect, the oil companies and refineries that purchase Iranian crude would be forced to stop buying, because they would have no way to pay for the oil. Despite these harsh restrictions, the law does not take effect for 6 months (although Iran’s currency has already plummeted, losing 40% of its value vs. the dollar in the last  month). Even more importantly, the White House has almost total flexibility and discretion in how to enforce the law. The US wants to hurt Iran, but with a fragile economy, it does not want to cause a shortage of crude and an oil price spike. The US has said that it will grant waivers to countries that show progress in reducing their purchases of Iranian crude oil. The bottom line is that the US now has a very powerful tool to exert pressure on Iran’s crude customers, but it will use this tool with finesse and an eye on the oil markets.
  • On January 4, the EU reached an agreement in principle to ban its 0.6 Mb/d of imports of Iranian crude – 25% of Iran’s total exports. Italy, Spain, and Greece are the European countries most dependent on Iranian crude, and apparently, the objections of these countries have been overcome. It is not at all clear what the EU embargo will look like. As Italy has made very clear, it has not even been decided whether the embargo will be full or partial, and how quickly it will be implemented or phased in. The key is that EU countries need to be able to arrange alternative supplies, primarily from Saudi Arabia, the main holder of spare production capacity. Talks on making these arrangements are assumed to have been taking place since December, if not earlier. The EU is reportedly hoping and planning to announce its embargo, including the details, on January 30, at the next EU foreign ministers meeting. Europe has the same concerns about a fragile economy and an oil price spike as the US, probably even more so. Because of this, we expect a slow and gradual implementation of what will eventually become a full embargo. One possible option that has been reported is for the EU embargo to take effect at the end of June, at the same time as the new US sanctions. This would be a tidy solution and  makes a lot of sense. Whenever the EU embargo is officially announced, we expect the IEA to quickly follow up and make it very clear, probably through a press release and/or a press conference, that it would coordinate a release of strategic reserves, if needed, to ensure crude supplies to its European member countries. We also expect Saudi Arabia to make it known, perhaps quietly, that it will be providing additional supplies to European refiners.

While so far Iran talk has not manifested in big price swings in Brent, Urals have been notably impacted:

Despite all of the talk about Iran, there has been no discernible impact on Brent prices, in absolute terms. Front-month ICE Brent prices remain rangebound. At $112-114 in recent days, Brent has risen to the top of the trading range seen since November; however, there has been no upside breakout. Moreover, recent crude price gains have been not only due to Iran, but also to positive macro data flow from the US and China, and to strong risk appetite. That said, we believe that the US sanctions and the EU embargo are clearly supportive. Iran represents a bullish tail risk that will make traders think twice about going short.

 

The one place where EU embargo concerns may have had a market impact – though it is debatable – is on Urals prices, where differentials to Brent have been quite strong. Urals, which directly competes with Iranian grades and is a substitute, has priced at an unusual premium to Brent in recent weeks. However, the Urals strength preceded the proposed embargo, and Iran is only one of several factors. Urals has been supported by strong Russian domestic demand and restrained exports to Europe, as well as ongoing supply disruptions in Syria (-160 kb/d) and Yemen (-80 kb/d).

How much oil is at stake.

What’s at stake? Iran produces 3.5 Mb/d of crude. It processes 1.1 Mb/d of crude in domestic refineries, and exports the remaining 2.4 Mb/d. The oil markets are concerned with the 2.4 Mb/d of exports. The breakdown is shown in the table above. Of the 2.4 Mb/d of crude exports, 0.8 Mb/d goes to OECD Europe, including 0.6 Mb/d to EU countries and 0.2 Mb/d to Turkey. Iran’s main market, however, is Asia, which takes 1.5 Mb/d of crude exports, including 0.5 Mb/d to China, 0.4 Mb/d to India, and 0.5 Mb/d to Japan and S. Korea.

 

As discussed above, our view is that the EU will put a full embargo in place, which would stop the 0.6 Mb/d to the EU; however, after the announcement, the implementation will be phased in gradually. We do not believe that Japan and S. Korea will participate in any embargo; however, the US, through its own sanctions, will put pressure on its close allies to reduce imports from Iran, and the combined 0.5 Mb/d could be lowered. We expect flows to China and India to continue; they may even increase, particularly if refiners can negotiate discounts from Iran. However, as discussed below, we do not think that Iran will be able to simply sell its entire EU 0.6 Mb/d in Asia instead.

A breakdown of how SocGen gets to its Scenario targets:  "Scenario 1: EU bans imports of Iranian crude. Brent prices in the $125 - $150 range."

When the EU embargo is announced and is implemented, obviously there will be a bullish knee-jerk reaction across the crude complex, paper and physical, in response to the announcement. Beyond this, what will happen?

 

As noted above, we believe that Iranian flows to Europe will be replaced, primarily by Saudi Arabia, but with some help from Kuwait, the UAE, and Qatar. Discussions to arrange those replacement supplies are reportedly already taking place. As shown in the chart below, OPEC crude production spare capacity in November was 2.25 - 2.75 Mb/d; indications are that it did not change materially in December. With Saudi output at 9.75 Mb/d according to the IEA, and capacity at 11.5 – 12.0 Mb/d, Saudi spare capacity was 1.75 Mb/d – 2.25 Mb/d. Kuwait, the UAE, and Qatar combined for another 0.5 Mb/d of spare capacity, mainly in Kuwait and the UAE. The Saudis alone can easily replace the EU’s 0.6 Mb/d, and there is more than enough spare capacity to make up for volumes that other countries, such as Japan and S. Korea, might need if they reduce imports from Iran.

 

However, even though the Saudis and OPEC can make up the supplies, an embargo would be bullish. The reason is that there would be less spare capacity remaining after replacing Iranian volumes. Libya is also a wildcard. If Libyan production continues to ramp up from the current 0.9 – 1.0 Mb/d, we expect the Saudis to start to decrease their Libyan replacement volumes, which would give them back some spare capacity.

 

There are other variables. In order to make up for lost sales to Europe, we would expect Iran to try to sell additional volumes to Asia, specifically to China and India. This is easier said than done. Focusing on the Saudis, refiners in both countries have term contracts with Saudi Aramco, and could not simply tell the Saudis to reduce their exports. They would have to ask, and the Saudis have no reason to say yes. Why should they lower revenues in their key regional market, in order to help out their biggest geopolitical rival? It would not make any sense.

The question, therefore, is: how much incremental Iranian crude could China and India take? It depends on their overall crude demand level, how much they are committed to taking from other producers, and importantly, what the price of Iranian crude is. Chinese and Indian refiners would have good negotiating leverage with Iran, who would have to cut their prices for Asian customers. Indeed, China has already taken significantly less Iranian crude in January, they may do it again in February, and we believe this to be posturing and setting up a negotiating position. Our “guesstimate” is that Iran would only be able to sell a maximum of 200-300 kb/d of the available EU 600 kb/d to China, India, and maybe other countries. So Iran would get hurt from lower revenues, due to both lower volumes and also due to forced price discounting.

 

Logically, an embargo on Iran should mainly impact the sour crude markets, in the form of stronger backwardation on the forward curve for Dubai, stronger differentials vs. sweet crudes, and stronger differentials for Asian vs. Atlantic Basin crudes. However, we believe that paper markets would also be affected and that there would be a bullish impact on ICE Brent and NYMEX WTI, even though they are sweet crudes.

 

Depending on the EU embargo scenario and how much Iranian crude is cut by non-EU countries such as Japan and S. Korea, and depending on how much Saudi spare capacity remains after replacing Iran volumes, we expect Brent prices in the $125-150 range. An embargo would possibly prompt an IEA strategic release. Finally, the price spike would dampen economic and oil demand growth. An EU embargo is likely, and when it is announced, depending on the details, we may revise our base case oil price forecast upward. Our current Brent crude price forecast for 2012 is $110.

And " Scenario 2: Iran shuts down the Straits of Hormuz. Brent prices in the $150 - $200 range."

The most bullish scenario would be if Iran retaliates, or even pre-empts, an embargo by trying to follow through on its oft-stated threat to shut down all shipments through the Straits of Hormuz. Based on JODI crude exports data for Iran, Iraq, Kuwait, Saudi Arabia, the UAE, and Qatar, we estimate flows are currently running at around 15 Mb/d. This is based on total exports from those countries of roughly 16 Mb/d, minus around 1 Mb/d of flows that do not go through the Straits of Hormuz; the latter includes 450 kb/d of Iraqi exports through the Kirkuk – Ceyhan northern pipeline and 800-900 kb/d of Saudi exports through the East-West pipeline to Yanbu on the Red Sea.

 

We believe it would be relatively easy for Iran to shut down the Straits of Hormuz, but that they would not be able to keep it shut for long. Importantly, Iran would not actually need to succeed in sinking an oil tanker or a naval ship to shut down the Straits. A credible threat would be enough to shut down oil shipments, because tanker insurers would stop coverage and traffic would cease. Threats could include mining the Straits; launching a surface-to-ship missile or maybe even just arming launch radars on those installations; or swarming armed small fast patrol boats around tankers – all of which would be detected by routine naval and air patrols conducted by the Western allies.

 

That said, we do not believe the Western allies would allow the Straits to be shut for a prolonged period. A disruption to oil flows would be considered a national and economic security threat, and if necessary, military force would be used to re-open the shipping lanes in the Persian Gulf. Our view is that Iran would not be able to keep the Straits closed for more than 2 weeks. In addition, after the re-opening, it would be possible to maintain security through the use of naval escorts for tankers, as happened during the 1980s Iran-Iraq war.

 

In the event of a shutdown of the Straits of Hormuz, disrupting 15 Mb/d of crude flows, we would expect Brent prices to spike into the $150-200 range for a limited time period. The disruption would definitely result in an IEA strategic release. Lastly, the severe price spike would sharply hurt economic and oil demand growth, and from that standpoint, be selfcorrecting. A Straits of Hormuz shutdown is not likely; we estimate the probability of this very high impact event at 5%. Although Iran may like the idea of retaliation and hurting its perceived enemies, it would hurt itself even more, by halting its oil export revenues. Moreover, Iran would do this at the cost of provoking a military response that would destroy much of its military and perhaps even target its nuclear program.

Next steps and key dates:

  • December 31/January 1 – The US responsibility for securing Iraqi airspace formally ended, and Iraq’s responsibility for its own airspace formally began. Iraq has no effective air force. Therefore, the shortest route for Israeli aircraft to attack Iran’s nuclear sites - straight through
    Iraq – is available.
  • January 30 - EU foreign ministers meeting: possible announcement of EU embargo on imports of crude from Iran
  • February – Iran’s next announced naval exercises in the Persian Gulf March – Iranian elections
  • June 30 – new US sanctions on the Central Bank of Iran take effect.
  • September – According to Ehud Barak, the Israeli Defense Minister, after September, a successful military attack on Iran’s nuclear sites will no longer be possible, because Iran will widen the redundancy of its facilities and spread them out over more sites, including the impenetrable  site at Fordow (near Qom), which is located inside a mountain.
  • November – US elections
  • December – According to Leon Panetta, US Secretary of Defense (and former Director of the CIA), Iran could have a nuclear weapon capability by the end of 2012.
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Sun, 01/08/2012 - 13:14 | 2044204 achmachat
achmachat's picture

Long bicycles and rollerblades!

Sun, 01/08/2012 - 13:27 | 2044210 TruthInSunshine
TruthInSunshine's picture

Oil to $200 a barrel (which is what the pits want, just like they were cheering on Iraq-U.S. hostilities, 'cause it makes the longs bank) easily within days of true hostilities regarding Hormuz.

How high it goes after that is anyone's guess, because of the practical, tactical and speculative forces (some legit, many not) at work.

The irony is that at $150 a barrel, it sets up the global economy for the BIG Double Dipper, which will bring on 2008 redux. $200+ puts the globe in a depression.

At that point or beyond, and it's a long walk home, in the cold, icy streets.

Any claim that Saudi Arabia or any other big producer is going to plug the output gap from Iranian Oil based is pie-in-the-sky.

p.s. -

Highlights Ron Paul in ABC News Debate January 7th, 2012
Sun, 01/08/2012 - 13:28 | 2044235 blindfaith
blindfaith's picture

au-fooie, this is alarmist crap as usual.  First off there is an OIL GLUT.  Second US drivers and European have cut back gas use severly.  Third, the military isn't burning up a trillion gallons of fuel a day in Iraq.  Forth, just like the 'shorts' are treated, the world governments will cut the legs of speculators if they try to cash in....so beware.

Sun, 01/08/2012 - 13:31 | 2044243 TruthInSunshine
TruthInSunshine's picture

Oil glut is irrelevant if you can't get to the oil.

Sun, 01/08/2012 - 13:46 | 2044284 Scirocco
Scirocco's picture

USO CALL SPREADS, BITCHEZ

Sun, 01/08/2012 - 15:19 | 2044562 wanklord
wanklord's picture

The only plausible way by which Barry & Associates (including the Zionist warmongers) could justify a war against the Islamic Republic of Iran is by staging another false flag attack on continental United States: most likely a controlled nuclear explosion (dirty bomb) targeting a major urban concentration that may kill dozens of thousands of civilians.

This operation will be carried out by the CIA in partnership with Mossad and MI6 to subsequently be blamed on AlQaeda working in conjunction with elements of Iran’s IRGC and Pakistan’s ISI.

Besides that, Americans are a bunch of stupid animals easy to manipulate and subdue. The psychological impact of this event will elicit the brute and ignorant populace to demand a massive retaliation against the alleged perpetrators (explicitly Iran); the Obama administration will need the unconditional support of these mules in order to further their wicked agenda.

Absent of this essential prerequisite (a false flag operation), President Soetoro will find virtually impossible persuading US Congress to issue a formal declaration of war.

Ps. To all of you, Strauss' Vulgar Many out there, as soon as the first bullet is fired in the Persian Gulf, you can certainly say good-bye to all of your ridiculous investments.

Sun, 01/08/2012 - 15:21 | 2044597 YBNguy
YBNguy's picture

Im so glad I bought that Chevy Volt!   /sarc

Sun, 01/08/2012 - 15:40 | 2044649 trav7777
trav7777's picture

Iran can't close the Hormuz.  If they were to REALLY close it, they will have to start sinking or boarding and redirecting ships.  This type of embargo action is a clear act of war.

Sun, 01/08/2012 - 19:22 | 2045185 hardcleareye
hardcleareye's picture

Sorry for the cut and paste, but reminds me of the tactics that founding fathers used against the vastly superior forces of the British in 1776... 

The matter of what specific tactics would be employed remains speculative, contingent upon the regional and global strategic environment present at the time Iran's strategists decide to take action. They could run the gamut of sabotaging ships in all sorts of asymmetric ways to "soft" mining and obstruction tactics that could be blamed on "pirates." If regional exporting states collaborated with the United States on an Iran oil embargo, those measures could be accompanied by infrastructure sabotage, as seen in conflicts in southeast Turkey, Nigeria, or Egypt.

This strategy does not rely on Iranian ingenuity or a newfound method of warfare. But the fact that it has the most strategic coastline on the waterway and the region's largest navy (whose strategic doctrine has long placed a premium on asymmetric warfare) means it is well positioned to disrupt, on a low-level, continuous basis, the vital shipping corridor.

This asymmetric approach would not close down the strait. For Iran, the choice is not "to close" or "not to close," but rather to clog. A major global choke point, once considered safe, would no longer be so. In practical terms, vastly increased costs for shipping -- including security, insurance, and reinsurance for both cargo and crew -- along with permanent market instability, would be the new norm. For oil producers, particularly Iran, this would be a far more advantageous strategy than a full-on blockade.

Read more: http://www.pbs.org/wgbh/pages/frontline/tehranbureau/2012/01/analysis-subtle-sabotage-irans-other-option-in-the-strait-of-hormuz.html#ixzz1iuYuAHdt

Mon, 01/09/2012 - 01:25 | 2045722 TruthInSunshine
TruthInSunshine's picture

Oppressed Iranians, do not fret over your suppression by your totalitarian regime.

We will soon liberate you of your oil....errr....liberate you.

 

Sincerely,

 

Team America

[Fuck Yeah]

 

p.s. - North Koreans & Eritreans, we know we've kept you waiting for a long, long time, but the good news is that you are next-to-be-liberated, when you find large deposits of inexpensively extracted oil.

Sun, 01/08/2012 - 15:06 | 2044541 disabledvet
disabledvet's picture

and oil is irrelevant if the EU collapses. So is SocGen i might add. And New York. And London. And Hong Kong...etc...etc...

Sun, 01/08/2012 - 13:29 | 2044238 The Big Ching-aso
The Big Ching-aso's picture

 

 

If they close the Straits of Hormel how in the hell will we survive without bacon?

Sun, 01/08/2012 - 14:14 | 2044388 Gordon Freeman
Gordon Freeman's picture

Excellent!  LOL!!

Sun, 01/08/2012 - 13:40 | 2044266 sushi
sushi's picture

There is a second issue. From the text above it is clear that anyone transacting with Iran cannot avail themselves of the US financial system. Obama says so.

There are a lot of aspiring capitalists in the world who will realize that if the US empire can do this to one state it can do it to any state. Therefore there will be a search for alternatives to the US financial system. There have already been initiatives in this direction from China and Russia. Expect these to gather momentum with the ultimate result that US dollar hegemony is called into question.

You have a choice. Follow the diktat of a dying empire turning into a 3rd world boondoggle or seek to transact business with entitites growing at 8% a year. What choice do you make?

 

Sun, 01/08/2012 - 13:50 | 2044297 TruthInSunshine
TruthInSunshine's picture

There's a third issue.

We're already at war.

Even a neocon of the most ardent stripes would have to concede - if they wanted to be taken seriously -  that attacking another nation's central bank (which is being done now upon Iran's central bank and monetary system) is an overt, unconditional act of war.

I'm not remarking upon whether we should or should not do this, and truth be told, I'm for fewer, not more, nations acquiring nuclear weapons capability (as I believe this destabilizes the world further; I hope that no one believes I have a double standard, as I believe some nations who possess nuclear weapons and refused to sign the NPT *cough* should be under the same 'gun' as Iran is), but economic warfare is warfare all the same.

Sun, 01/08/2012 - 16:00 | 2044704 trav7777
trav7777's picture

the US has shown its hand; we will attack and wage war on anyone who is outside of or any rival to our system.

Nuclear weapons, via MAD, make deterring that impossible.  The US has shown that we will push and provoke and test limits essentially daring anyone to go over this line.  Until another nation stands up a conventional forces capability that can rival especially our navy and air force, the trend will continue.

Sun, 01/08/2012 - 21:39 | 2045432 The Big Ching-aso
The Big Ching-aso's picture

 

 

Yeah well Einstein, you forgot one thing.    All it takes is someone in charge somewhere who has gone nuts and pushes the red button, because well it just seemed like the wrong thing to do at the time. 

Sun, 01/08/2012 - 15:55 | 2044692 richard in norway
richard in norway's picture

im surprised that no one here has talked about how a higher oil price could streghten the dollor. all those petro dollars have to be recycled somehow, also not bad for the dollar if high oil prices kill the euro.

 

im totaly amazed that no one here has talked about the possiblity that this sabre rattleing is conected to ron paul's continueing success in the primery race(well hes not down yet) the iranian threat is good anti paul proaganda and means that no attention is paid to his economic ideas. it wouldnt be so far fetched to belivie that the iranians are in on this, in the same  way that bush senior made a deal with the iranians to supply them with arms if they kept hold of the hostages until after reagan was elected.

my god, im on a roll three conspricy theories in one post

Sun, 01/08/2012 - 16:02 | 2044711 trav7777
trav7777's picture

RP is an afterthought.  Media is treating Scumtorum and Mormney as the front-runners and spending all its time discussing those two candidates because of what happened in Iowa.

Scumtorum's showing there has conveniently provided the false dilemma A vs. B that makes RP presently an invisible choice.

Mon, 01/09/2012 - 01:09 | 2045854 CompassionateFascist
CompassionateFascist's picture

Saudi's won't be making up any shortfall. Shi'ite guerrillas will blow the pipelines.

Sun, 01/08/2012 - 14:04 | 2044355 CrashisOptimistic
CrashisOptimistic's picture

Wrong.

Wrong.

Wrong.

Oil price is not informative about oil scarcity because OIL IS EVERYTHING.

If you spike oil, it destroys economies and thus demand and price plummets, WHICH MEANS NOTHING ABOUT ITS SCARCITY.  This is not some Sunday drives that don't happen.  There is no slack.  If you slash demand, you slash someone's life somewhere.

There is no commentary about about just where the EU is going to find replacement 600K bpd.  Libya won't be back online for a year.  During that year, China's consumption and India's consumption will grow.

Oil is like food.  It HAS TO BE CONSUMED.  If you add people, you must consume more oil.

My prediction is hawkish talk, and no change.  The EU will annouce they will embargo Iranian oil . . .someday.

 

Sun, 01/08/2012 - 13:16 | 2044206 pine_marten
pine_marten's picture

Bullish on bicycles

Sun, 01/08/2012 - 16:00 | 2044705 resurger
resurger's picture

hahaha!

Sun, 01/08/2012 - 13:16 | 2044207 adyaner
adyaner's picture

Euro Bank run guaranteed cause the lower minimum reserve ratio in operation from 2% to 1% and the Added higher fuel cost for european... BOOM...

Sun, 01/08/2012 - 13:17 | 2044208 King_of_simpletons
King_of_simpletons's picture

War with Iran is great news for the establishment coffers. Bad news for main street USA.

Sun, 01/08/2012 - 13:48 | 2044292 Poetic injustice
Poetic injustice's picture

Armaments industry will flourish, of course.
So good news for parts of main street.

Sun, 01/08/2012 - 13:19 | 2044211 Worker Bee
Worker Bee's picture

I build rat bikes as a hobby. It may be a hobby that pays off soon.

Sun, 01/08/2012 - 13:21 | 2044213 GeneMarchbanks
GeneMarchbanks's picture

Embargo + not closing SoH = full on attack on iRan. Might as well declare war instead of pussyfooting like always you Anglo-fascists.

$200+ if it all goes down this way...

Sun, 01/08/2012 - 13:42 | 2044248 Ghordius
Ghordius's picture

you know that we don't declare wars - it's keeping peace and prosperity

$200+? I don't know. I keep thinking though that when it comes to oil, everybody lies

how did it work again in the seventies? Oil-Shock, good priming for a nice price rise across the board

should make Bernanke, Krugman and the megabanks very happy...

Sun, 01/08/2012 - 15:10 | 2044555 disabledvet
disabledvet's picture

I must say it is interesting Ghordius that destroying the value of Iran's currency as the US has done by attacking its Central Bank is not considered an act of war under the War Powers Act. Do you think we have a Congress in name only over here? We're certainly not a nation of laws anymore...are we....

Sun, 01/08/2012 - 16:08 | 2044725 trav7777
trav7777's picture

you know goddamned well how we would respond to such a threat to our FRN. 

The difference is Iran can't do much about it.  Depending upon Russia or China for cover...lol.

We learnt that in previous attempts to do wtfever we wanted.  Russia and China cover are only relevant to the UN.  So now we don't even bother going that route.

Mon, 01/09/2012 - 01:19 | 2045869 CompassionateFascist
CompassionateFascist's picture

Race-realist, they can do plenty about it. Watch what happens to the next US carrier that enters the Straits. Remember, Iranians aren't Wogs. They are Aryans. And they will fight to the death, just as they did against the last Isramerican-sponsored attack - Sadaam Hussein's mid-80s aggression. 1,000,000 dead Iranian soldiers and civilians, and Sadaam pulled back. Iran is way stronger now, and the longer the war goes on the more deeply involved Russia/China will get. 1-9-1-4.

Sun, 01/08/2012 - 13:23 | 2044219 Don Diego
Don Diego's picture

great, USO will go now to 30 now <sarc>

Sun, 01/08/2012 - 13:27 | 2044221 Threeggg
Threeggg's picture

It amazes me the stories and lies that are being told to prop up the U.S. Dollar. Keep oil going higher to mask the inflation of the dollar itself by war mongering. Also keeping the price going higher as they devalue the dollar through inflation so the Arabs don't wise up and ask for Gold as payment.

Sooner or later "a light bulb will go on" under those turban's !

Sun, 01/08/2012 - 13:27 | 2044222 Pretorian
Pretorian's picture

Keep the oil above 65$ and the recession will last forever. God bless Republicans  and there corporations  for ruling the destiny of  US  and rest of the world.

Sun, 01/08/2012 - 13:34 | 2044252 Threeggg
Threeggg's picture

Like I said above it will never goto $65 again as it will only go higher. They must keep the price up to keep the Arabs interested in trading oil in Petrodollars. If the price drops to low they will wan't some other currency as payment. (The budgets of these Nations are predicated on $85 oil and their printing presses are running too)

Accepting Pretty colored printed paper with past Presidents on them will only carry on for so long.

Sun, 01/08/2012 - 15:53 | 2044687 Michelle
Michelle's picture

Start thinking people. Think MF Global bankruptcy. Curbing commodity and oil speculation needed to happen prior to a conflict with Iran to help prevent $150-$200 oil. I see a downdraft coming soon, ala Europe, bringing down the price of oil and other asset classes. This will allow a window of opportunity for a strike against Iran and an assured spike in oil, with a top no more than $120 short term and then lower from there as the offensive gains steam. Let's wait and see what actually happens, but that's my forecast.

Mon, 01/09/2012 - 02:24 | 2045957 kiwidor
kiwidor's picture

I voted you down for the simple reason you have a woman's name.  get back behind the sink.

window of opportunity my ass. the rest of the world (TROTW) has had a gutsfull of american nonsense and will respond with a force de frappe.  1000 to 1 casualties.  anglo american empire has been begging for it for 175 years. anglo zionist empire has been given notice that false flags will be responded to with lethal and permanent force.  you wanna call their bluff?

 

Sun, 01/08/2012 - 13:30 | 2044239 lolmao500
lolmao500's picture

http://rt.com/news/iran-ready-block-strait-hormuz-361/

Iran says it will close Strait of Hormuz if crude exports blocked
Tehran’s leadership has decided to order a blockade of the strategic Strait of Hormuz if the country’s oil exports are blocked, a senior Revolutionary Guard Commander said as reported by Iranian press.

Sun, 01/08/2012 - 13:34 | 2044253 LeBalance
LeBalance's picture

lol, what is the long haul trucker's breaking point as far as fuel costs?

as in when does the food stop getting delivered?

Sun, 01/08/2012 - 13:41 | 2044269 cossack55
cossack55's picture

Any idea how many trucks are in a returning US infantry division?

Sun, 01/08/2012 - 15:35 | 2044639 Whoa Dammit
Whoa Dammit's picture

But the military will not be delivering food to Kroger or Publix. The food will be sent to "social service" charitites (like the ones who received all of the recent Countrywide foreclosure settlement money.) Good luck getting any of that food unless you are currently on food stamps.

Sun, 01/08/2012 - 15:26 | 2044614 Teamtc321
Teamtc321's picture

Industries haul's vary but a general rule is 58.50 to 62.50 per hour based on 15.00 per hour driver and 3.25 fuel depending on fleet size. In 08' with 130 to 145 per bbl oil and diesel at 4.25 to 5.0 per gallon, the transport industry was crushed. Smaller companies shut down in droves and continued into 09' to close.

The glaring issue inside transport companies is not only the increased fuel cost but the increase in tires, part's and overall maintenance of fleet cost. Some companies where able to able to charge a fuel floating fuel charge but not all. Margin's have crashed in the transport field along with good or high paying job's in some field's. 

It is a real shame imo that we have insisted nat gas to power our transport fleet's. http://www.pickensplan.com/

Clean Energy Fuels has been a stong model with there set up of nat gas fueling station's on The I-10 freeway but it is just a drop in the bucket for what need's to be done to secure our food supplies imo. 

This is a site that provides some good overall guages to the industry. http://www.genco.com/Transportation-Logistics/transportation-industry-trends.php 

 

 

Sun, 01/08/2012 - 13:34 | 2044256 TheSilverJournal
TheSilverJournal's picture

Iran doesn't have the stupidity or ability to shut down the Straits of Hormuz. I wish the focus would be kept on reality. Unfortunately, the world allows itself to be captivated by the fear of nonsensical things.

TheSilverJournal.com

Sun, 01/08/2012 - 13:37 | 2044260 lolmao500
lolmao500's picture

Yeah let's forget that countless CIA analysts say Iran CAN shut down the Strait for weeks.

Sun, 01/08/2012 - 13:44 | 2044274 cossack55
cossack55's picture

I assume you are referring to the same CIA whose sole purpose for over 40 years was to watch every thing the USSR did, yet missed the collapse of same USSR. That CIA?

Sun, 01/08/2012 - 13:55 | 2044323 lolmao500
lolmao500's picture

yet missed the collapse of same USSR.

Because everyone in the CIA thinks the same right? Nobody in the CIA saw it right? Some people saw it coming a long way, CIA or not.

It's like saying that all economists are wrong because the MSM economists are wrong all the time. That's totally ridiculous.

Sun, 01/08/2012 - 13:46 | 2044279 sushi
sushi's picture

And better forget the 2002 US wargame in which that nasty country RED sank half of nice country BLUE's Fifth Fleet and closed the strait.

Sun, 01/08/2012 - 13:46 | 2044281 TheSilverJournal
TheSilverJournal's picture

I'll listen to what makes sense. Closing the Straits is a death wish for Iran and they know it.

Oil is going to $200 with the actual reason being the printing of currency and ultra low rates, not Iranian scares. Unfortunately, you, along with many others, are buying into the propaganda instead of thinking for yourself and putting it on Banana Ben and deficit spending Obama.

TheSilverJournal.com

Sun, 01/08/2012 - 14:30 | 2044428 TruthInSunshine
TruthInSunshine's picture

It's interesting.

While fractional reserve banking Ponzinomics undoubtedly impacts the pricing of everything, including oil, high oil prices leading up to a Super Election is bad for the POTUS, all things being equal.

As for oil prices soaring as a result of the Straits of Hormuz being closed being "bad" for Iran, that depends on many potential consequences. In some scenarios, given a certain set of factors and outcomes, the higher oil prices go, the more politically and economically beneficial it is for Iran, so long as they have takers for their oil (and I do believe a compelling case can be made that they inevitably will, given the dynamics of the global petroeconomy).

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