United States:The prospect of pandemonium in the oil markets makes US military action unlikely, writes Steven Mufsonin Washington.
A US military strike against Iran would have dire consequences in oil markets, say a variety of industry experts, many of whom believe that the prospect of pandemonium in those markets makes US 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 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 jumped to above $92 a barrel in New York for the first time yesterday after the Bush administration on Thursday tightened US financial sanctions on Iran over its alleged support for terrorism and issued new warnings about Tehran's nuclear programme.
Tensions between Turkey and Kurds in northern Iraq and fresh doubts about Opec output levels also helped drive up prices.
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 anywhere from $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.
"If war breaks out, anticipate that all hell will break loose in the oil markets," said Robin West, chairman of PFC Energy, a Washington 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 Centre 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."
During earlier conflicts in the region - the Iran-Iraq war in the 1980s, the Gulf War in 1991 and even the 2003 US-led invasion of Iraq - the world's oil exporting countries had enough capacity to make up for the oil exports disrupted. Not so this time. Demand has grown, and output has fallen in many oil-producing countries.
Almost all of the world's excess oil production resides in Saudi Arabia, which is capable of boosting output by a little more than 2 million barrels a day. Iran produces 2.5 million barrels a day.
Moreover, while some members of Opec fear that high prices would hurt oil demand and undercut long-term revenues, others are content and see no need to boost output."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. "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 . . . 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 US-patrolled Strait of Hormuz. It could simply collaborate with Shia forces in southern Iraq to cut off Iraq's roughly 1.7 million barrels a day of production, further weakening its neighbour 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," Mr al-Awadi said.
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 Dick Cheney said the US would "not stand by" while Iran continued its nuclear programme. "We will not allow Iran to have a nuclear weapon," he said. On Thursday, secretary of state Condoleezza Rice said that US patience is "not limitless and allies need to know that".
"Everyone wants it not to happen," Mr Drollas says, "but it's like a crash happening slowly. You can see the two cars coming toward each other . . . There's an inevitability about it." -
(LA Times-Washington Post service)