Of Iran and Oil

oilTo the Editor:

Among the few countries that have a substantial influence over the prices of crude oil and natural gas, Iran is probably the most feared by the international community due to its strategic, geographic and geopolitical position in the Middle East and Central Asia.

Regularly coming into economic conflict with the United States over the last few years, Iran has successively rebuffed calls for it to expand the production level of the OPEC, threatened to take control of the Strait of Hormuz – where half of the world’s oil production is transported weekly, allegedly supported terrorist groups in Lebanon and Palestine and, in 2007, threatened to bomb half of the off-shore oil and natural gas platforms in the Caspian Sea if the Americans didn’t remove their troops from Azerbaijan.

There are a wide range of factors that influence oil prices, from piracy in the Indian Ocean to a rise in Chinese demand. But Iran now holds a special spot on the list since geopolitics have moved it center-stage.

It’s important to remember that Iran is the world’s fourth largest oil producer and also possesses the world’s second largest natural gas reserve. By such standards, Iran could hold half of the world hostage in terms of energy. So why hasn’t it happened yet?

Iran needs the Western world to buy its oil and its natural gas because, just like every country across the globe that relies on natural resources for the survival of its economy, the Islamic Republic needs to eat, needs to finance its infrastructures, needs to pay for its nuclear program and its military equipment.
The problem is that Iran has allied itself with one of the most feared countries in the world in terms of energy and military power, the one and only motherland: Russia. The same Russia that has been providing Iran with unique missile guiding systems, with the latest Sukhoï and MIG combat planes, with access to some information on civil nuclear engineering, and the same country that was given an offer to join the OPEC two months ago by the same man who represents the Islamic Republic: Mahmoud Ahmadinejad.

Furthering this process, Iran recently offered Russia, Venezuela and a few Caspian Sea countries a place in the formation of a new cartel to control natural gas markets, using the same model as the OPEC. The day following this announcement, oil prices soared by $10 and natural gas prices followed by about the same amount.

From a technical point of view, Iran cannot by itself determine the new crude oil prices, it requires the agreement of a majority of the OPEC council. From a practical point of view, it can influence it greatly, and at a very impressive speed.
Over the course of 2008, crude oil price went up six times, leading to a ceiling price of $147 per barrel before going down again. Every single time, the rise in prices was the direct result of an action taken by Iran: testing new mid-range missiles, announcing the possibility of a cut in OPEC production, announcing civil nuclear tests, etc.

Overall, Iran has a considerable influence over crude oil and natural gas prices, but it’s never been very technical. One must understand the nature of Iranian provocation, and not respond to it by creating a “risk premium” or “fear premium” of $15. The western world still needs to learn how to do that, and it could take a few lessons from Russia on the matter.

Sincerely,
Thibault Normand

Find out more on http://www.eastern-intelligence.com

Normand is the owner of Eastern Intelligence
He works as a free lance writer in business intelligence and consults on stratehic matters such as oil and gas business, in Eastern europe, Russia and Central Asia. Read more about him here : Who am I?

Source:http://www.articlesbase.com/politics-articles/of-iran-and-oil-1317350.html

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