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ENERGY SHOCK: A time bomb is ticking
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 kippreport
A time bomb is ticking.
The problem is that the world’s energy and financial markets don’t know what kind of time bomb they have on their hands. For one, it could be what most outside of Iran dreads: nuclear capability achieved by the Islamic Republic. Another kind of bomb the world could be facing is more figurative. It’s a financial bomb in the form of American sanctions placed on Iran.
Yet another type of ticking time bomb is Iran making good on its threat to close down the Straits of Hormuz. All three scenarios – not entirely unrelated, of course – have the power to place the world’s energy markets into complete chaos. And what could follow, in each case, is the price of crude oil could reach an unthinkable high price.
“An oil shock resulting from [a United States/European Union] economic confrontation with Iran would ripple throughout industries around the world – and could also derail the global economic recovery,” state analysts in a recent report from Moody’s. “While the risk of an oil-price supply-side shock arising from Iran successfully blocking the Strait of Hormuz for an indefinite period appears small, it could have a considerable impact on global economic growth. Sustained high prices could destroy demand for oil, eventually triggering a severe correction in oil prices, which, in turn, would adversely affect financial results across the oil and gas sector.”
At this point, nobody knows for certain how closely the United States and the European Union will enforce such economic sanctions. The United States has said that on June 28 of this year it would block access to its financial system for any entity that deals with the Iranian Central Bank, according to Moody’s. The European Union stated it would ban Iranian oil imports just days later, on July 1. Although the United States does not import any Iranian oil, the E.U. does for a whopping 18 percent of Iran’s oil exports. Add in China, Japan, and India to the embargo nations, which currently account for half of Iran’s exports, and it’s clear that an energy crisis would ensue at the pump.