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ENERGY SHOCK: A time bomb is ticking

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Iran’s nuclear ambitions and Europe’s economic turmoil could place the world’s energy market in a state of chaos.

July 17, 2012 11:30 by

  “If Iran does scale back its own produc­tion from its typical 2.2 billion barrels per day, other major oil-producing countries may need time to fill the gap by increasing their own production,” stated the Moody’s report. “Iran could itself pressurize the U.S. and E.U. by trying to raise the world’s oil prices as well. An Iranian move to seal the Strait of Hormuz would choke the key ex­port points for a number of regional oil pro­ducers, including Saudi, Kuwait, Iraq, Bah­rain, Qatar and the United Arab Emirates. These countries cannot easily increase their own exports through other means.”

The International Monetary Fund has stated that these sanctions, if completely adhered to, might cause crude oil prices to rise by as much as 30 percent. Tensions in other countries, like nearby Syria and Rus­sia, both friends of Iran, could cause even more instability in the energy markets.

But with any chaotic situation, it’s not just the sudden price hikes that muster at­tention by the world’s markets. It’s those unnerving, precipitous drops as well. Ac­cording to a study by Emirates NBD, cer­tain equity markets have not been helped by recent growth numbers and decisions in taken in political circles. For instance, Rus­sia’s imposition of higher taxation on gas companies has hurt the hydrocarbon sector and the drop in Brent crude to $110 from $125 per barrel has also had an impact, says Emirates NBD.

The only nation in the Middle East that turns out more oil than Iran is Saudi Arabia, According to a Merrill Lynch study, since the start of May, prices of Brent crude and West Texas Intermediate crude are down 5.7 percent and 8.6 percent, respectively. “Partly to blame for the retreat in crude oil prices is an improvement in supply,” says Merrill Lynch. “Saudi Arabia keeps churning out crude oil at decade highs of approximately 10 million barrels a day, while Libyan production is improving and outages in non-OPEC elsewhere are easing. Iranian oil, while reduced, is still finding some outlets around the world.”

But don’t count on reduced prices indef­initely, especially with the prospects of Ira­nian meddling with the Strait of Hormuz. GCC countries, as well as the majority of the Middle East and North Africa, are in­exorably linked to the economies of West­ern Europe and North America. Given that the West continues to suffer from a lasting recession and delayed economic recovery, the oil-producing nations and the companies that are derived from them are facing an uncertain future. 

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