Will This 25-Page Report Send Oil to $200 per Barrel?
By Justice Litle, Editor, Insiders Strategy Group
Dear Reader,
Could a 25-page report send the price of oil to $200 per barrel?
The International Atomic Energy Agency, or IAEA, released its findings on Iran this week. Their 25-page report accuses Iran of developing miniaturized nuclear warheads, built for delivery by medium-range missiles. Iran could have enough fissile material, if enriched to weapons grade, for four nuclear bombs.
Fallout from the report is spreading (no pun intended). The United States could push for new sanctions on Iran... Israel is on high alert... and harsh threats are flying.
Benjamin Netanyahu, the prime minister of Israel, is said to be reviewing Israel's options for a military strike. Iran did not mince words on hearing the news.
Iranian officials said an Israeli attack on its infrastructure would be suicidal. "If a military challenge is started against Iran in the region, the Zionist regime will definitely be faced with a hell," said a member of Iran's national security commission.
Israel has a history of nuclear intervention. In 2007, the Israeli military destroyed a potential nuclear site in Syria. In 1981, Israel preemptively struck Osirak, a nuclear facility outside of Baghdad.
In terms of oil, the major risk comes down to the Strait of Hormuz, a key export gateway for multiple OPEC producers: Iran, Iraq, Kuwait, Saudi Arabia and others.
A third of all seaborne-traded oil passes through Hormuz every day, or roughly 15.5 million barrels. Were Israel to attack Iran, the Strait would potentially be shut down.
Oil consultant Phillip Verleger calls it "the $200-a-barrel scenario." Even more aggressive estimates put the war price at $290 per barrel. The risk is heightened by production bottlenecks in Libya and Syria, aggravated by civil unrest.
What would be the fallout from a Strait of Hormuz shutdown?
The consequences would hit like a one-two punch. First, a vicious spike in the price of oil would be massively deflationary. Energy-dependent economies around the world would seize up as prices rose. The weak recoveries of the U.S. and Europe, already in doubt, would be vaporized by price shocks.
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