Developments this week
Oil prices have climbed this week as the threat posed by the multiple crises going on in the Middle East have, for the time being, outweighed the possible collapse of the Eurozone. In NY oil prices closed at $100.36 after touching a high of $101.75 on Wednesday. In London oil closed at $110.52. Aside from the Iranian crisis, impetus for the rise came from slightly better economic news – a coalition of central banks lending more dollars to troubled European banks, better job numbers in the US and Beijing’s lowering of reserve requirements.
The US stocks report showed an increase in crude inventories largely due to a 5.2 million barrel increase in US crude imports last week over the previous week. For now stock reports are having little impact on the markets as traders contemplate the loss of the Euro or some portion of Middle Eastern oil exports.
The sack of the British Embassy in Tehran added a new facet to the Middle Eastern situation. Britain and other EU countries have withdrawn their ambassadors and other European powers are considering the same move. There is general agreement that Tehran’s affront demands some sort of retaliatory sanction beyond those already in place. The EU, however, is currently split as to whether the action should include an oil embargo as the EU buys some 18 percent or 500,000 b/d of Iran’s oil exports. There is a fine line between punishing the Iranians which continue to enjoy support from China and other importers of their oil and simply driving up oil prices to the benefit of OPEC to the detriment of oil importers.
Some analysts are already busy forecasting oil prices should a reduction in exports from the Gulf ensue from the confrontation. These forecasts are ranging from $140 a barrel to Armageddon depending on the size and duration of the outage. What seems clear however is that Tehran has a growing set of domestic political problems which is resulting in some of its rather bizarre behavior of late and the situation may be more dangerous than is readily apparent.
Elsewhere in the Middle East, the Syrian situation continues to deteriorate with the Turks hinting that some sort of military intervention is possible if the government does not stop gunning down its citizens. Bombs continue to go off in Iraq as the US prepares to pull out and an oil conference was cancelled in Basra this week due to the security situation. For the record, the Sinai pipeline from Egypt to Israel and Jordan was blown up for the ninth time this week. It made little difference as the damage from the last bombing had not been repaired as yet.
Despite a wave of stock market optimism over the move to increase bank liquidity on Wednesday, nothing has really been settled even though there have been nearly continuous meetings of finance ministers. The OECD notes that the global economic recovery is petering out and warns of the Eurozone crisis spreading to other countries. Many companies and financial institutions are preparing for the possibility that the Eurozone will collapse and trade will have to revert to national currencies.