zman’s Energy Brain

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Iran

I’ve heard oil analysts comment they think $2-5 per barrel of oil is attributable to the current tensions between the U.S. and Iran. My thought is they won’t block shipping through the Strait of Hormuz by either a blockade, attacks or sinking a ship. They need the money far too badly as Ahmadinejad got into office by throwing skads of cash to small villages during his campaign and by keeping the price of gasoline at , I believe, $0.12, which yielded burgeoning demand (10+ %) per annum which has turned his country into a huge net importer of gasoline because of a lack of infrastructure. The Iranians are as notorious as Putin for changing deal terms and don’t allow ownership in projects within their borders (kind of like pre-nationalizing the finds) so Big Oil is reluctant to invest heavily in infrastructure or exploration in country.

So by popular request, I zman, open this Iran thread to open discussion, this 26th day of February 2007. May it serve to keep rants off the main post and I would ask that you keep it clean fellas (I have readers over there).

CIA Factbook – Iran 

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17 Responses to “Iran”

  1. El Diablo said

    Well we’re already on the same page!

    In order to understand this ussue fully, we have to know the market’s expectations regarding the outcome/duration of this disagreement. I don’t know how to put a dollar price on the amount of Iran that is already in oil prices, but I have to believe that NO ONE thinks this issue will be amicably resolved in the near future, so anything short of a clear escalation should have no further impact on prices (and that includes baseless ‘threats’ and ‘promises’ from Ahmadinejad).

    What is the worst case?
    What is the best case?
    Which are we closer to right now?

    As I’ve said before, we have inventories (SPR) to deal with potential disruptions such as this. So technically, price should only be affected if we think the worst case involves us depleting our reserves and still not having the issue resolved….

  2. El Diablo said

    More facts (from http://www.eia.doe.gov/emeu/cabs/Iran/Full.html and

    Iran’s economy relies heavily on oil export revenues, with such revenues representing around 80-90 percent of total export earnings and 40-50 percent of the government budget. Strong oil prices the past few years have boosted Iran’s oil export revenues and helped Iran’s economic situation. For 2005, Iran’s real GDP increased by around 6.1 percent. Inflation is running at around 16 percent per year, though unofficial estimates place the figure at 40-50 percent. Iran’s oil export revenues have increased steadily, from $32 billion in 2004, to $45.6 billion in 2005, with 2006 estimates at $46.9 billion.

    Currently, Iran exports around 2.5 million bbl/d of oil, of which OECD countries import 60 percent (or 1.6 million bbl/d). Iran’s main export blends include Iranian Light (34.6° API, 1.4 percent sulphur); Iranian Heavy (31° API, 1.7 percent sulphur); Lavan Blend (34°-35° API, 1.8-2 percent sulphur); and Foroozan Blend/Sirri (29-31° API).

    Top Ten Iranian Crude Oil Export Destinations

    (Thousand bbl/d)
    Rank Reporting Country 2003 2004 2005
    1 Japan 685,034 630,462 570,604
    2 China 247,235 263,446 284,830
    3 South Korea 171,563 173,144 195,654
    4 Italy 194,055 188,033 193,935
    5 France 115,209 128,892 142,811
    6 Netherlands 130,214 138,751 139,246
    7 Turkey 138,683 114,217 138,873
    8 South Africa 118,695 189,613 134,646
    9 Taiwan 167,003 138,518 125,031
    10 Greece 88,781 115,533 105,236
    Reporting Total 2,056,472 2,080,609 2,030,866
    OECD Pacific 728,320
    OECD Europe 826,584
    Source: Global Trade Information Services, Inc., Global Trade Atlas, July, 2006.

    As you can see from these snippets, we can easily sustain our allies dependence on Iranian oil using our own SPR to protect our worldwide interests, not considering the fact that each of these countries also have their own SPRs as well.

  3. El Diablo said

    On the lighter side, we could always send a stealth bomber armed with a 20 kiloton nuclear bomb, drop it on their suspected uranium enrichment site, disclaim any responsibility and swear they they must’ve had a big accident while trying to build a bomb…. Certainly wouldn’t be any evidence left for anyone to argue otherwise…

  4. El Diablo said

    From the same EIA link above regarding US investments in Iran–I believe they have been renewed:

    Sanctions originally imposed in 1995 by President Clinton have been continually renewed by President Bush, citing the “unusual and extraordinary threat” to U.S. national security posed by Iran. The 1995 executive orders prohibit U.S. companies and their foreign subsidiaries from conducting business with Iran, while banning any “contract for the financing of the development of petroleum resources located in Iran.” In addition, the U.S. Iran-Libya Sanctions Act (ILSA) of 1996 (renewed for 5 more years in July 2001) imposes mandatory and discretionary sanctions on non-U.S. companies investing more than $20 million annually in the Iranian oil and natural gas sectors. The ILSA terminates on August 5, 2006, unless renewed by Congress.

    Needless to say, Iran’s infrastrucutre is in worse shape than Iraq’s. However, the spike in oil prices has negated the revenue impact of sanctions. New sanctions will have to be tougher, but in this politically-correct environment, it will be difficult to pass a resolution that stops oil exports completely–it would ‘hurt the Iranian people.’ We’d just end up with another oil-for-food-UN-thieving-bribery scandal anyway. The next humanitarian aid program needs to be administered by the United States Marine Corp, not the UN.

  5. zmann said

    My master plan for Iran/Opec next time oil falls back close to $50:

    * How About Taking A Week Long Production Holiday? Let’s see, that’s 26.5 million bopd for 7 days or 185.5 million bls off the world market in one week at a cost to you (Opec) of $55, $54, $53 per barrel which comes to $9.8 billion you won’t be seeing that week. We’ve got to have everybody in on this. No cheating…I’m looking at you Iran and Venezuela.

    * However, On The 8th Day You Start Pumping. And you pump more oil than before. You pump 30 million bopd even on the weekends.

    * On the dawn of the eighth day the NYMEX takes your oil of your hands for a much more respectable $100/barrel and the price drops by say $10 /week for the first 4 weeks and then holds at $60.

    * It’s A Win-Win-Win For You Guys. First, you’re paid out with the pop to $100 and the increased production in about 4 days. Secondly, your weekly revenues at $60 are 28% or $2.8 billion higher than when you started, and lastly, no one will ever accuse you of crying wolf again.

  6. […] hot topics. The first is Iran and the dialogue (well, currently a monologue) is up and running here. New topics will crop up weekly and get their own thread while older topics will get archived. […]

  7. p.wilmington said

    I’d like to add some simple points of comparison between Iraq and the USA
    1. In 1953, the USA and Britain staged a coup in Iran against the democratically elected government of Mohammed Mossadeqh. The USA then supported the Shah, who consolidated his power with the help of his vicious secret police, the Savak. Israel trained the Savak and received subsidized oil in return. Iran has never staged a coup in the USA or interfered in our democracy.
    2. In 1979, the Iranians overthrew the US backed Shah. Later that year they took over the US embassy making hostages of 63 employees. They were released a year and a half later. The USA recently took over an Iranian embassy in Iraq and took Iranian diplomatic personnel hostage.
    3. The current President of Iraq is Mahmoud Ahmadinejad. He is seen by much of the world as a fundamentalist with a rigid ideology and a penchant for verbally attacking Israel. The current President of the USA is George Bush. He is seen by much of the world as an arrogant and not very smart bully.
    4. The Iranians elected Ahmadinejad once and then rebuked him in the next election. The Americans have elected Bush twice and rebuked him in the last election.
    5. The CIA’s 2006 world fact book shows the USA spending the most on the military at $518 billion annually. Iran ranks 26th at $4.3 billion.
    https://cia.gov/cia//publications/factbook/rankorder/2067rank.html
    6. The USA has military forces occupying two of the countries – Iraq and Afghanistan – on either side of Iran. Iran has no military forces in Canada or Mexico.
    7. The USA has large naval forces, including at least one air craft carrier group and another on the way, in the Persian Gulf. Iran has no naval forces in the Atlantic Ocean, the Pacific Ocean or the Caribbean Sea.
    8. The USA has thousands of nuclear weapons and its’ Middle Eastern ally Israel has hundreds. Iran has no nuclear weapons, but may be developing them and may have them in 2, 5 or 10 years.
    9. While neither the USA or Israel are in any serious danger from Iran, both are apparently contemplating attacks on Iran, which could lead to terrible consequences for the populations of the Middle East and the world economy.

  8. p.wilmington said

    Apologies, but the first sentence should say “between Iran and the USA.”

  9. […] prices for everyone. Admed’s trying to enrich something all right and not just uranium. Check here for all the latest Iran facts, figures, and er, um […]

  10. GGas said

    Personally, I think the US government should go out and buy a strong oil trading shop. Give that tradind shop the SPR to trade around. Iran starts mis-behaving…crater the price. Keep it up until OPEC agrees to disband in exchange for getting out of the oil market.

  11. […] prices for everyone. Admed’s trying to enrich something all right—and not just uranium. Check here for all the latest Iran facts, figures, and er, um critiques. Putin Watch: Gazprom lowers […]

  12. El Diablo said

    Seems Bush administration has caved and will give Iran what it wants–economic incentive package. While this path removes the immediate concern, it just moves the problem to the back burner (same with N. Korea). We punt, we’ll deal with you at a later date, here’s a check. Nonetheless, minimizing the immediate crisis removes Iran as a catalyst for the oil market.

  13. El Diablo said

    Two noteworthy updates in the past 24 hours indicate that the ‘crisis’ is subsiding:

    (Source: Associated Press, Monday) Iran seems to have at least temporarily halted its controversial uranium-enrichment program, the head of the International Atomic Energy Agency said Monday. The pause could represent an attempt to de-escalate Iran’s conflict with the UN Security Council, which is deliberating a new set of harsher sanctions on the Islamic Republic. The IAEA says it remains unable to determine if Iran’s nuclear program has a weapon-making component. Iran’s chief delegate to the IAEA said his country would “never give up its inalienable right” to enrich uranium.

    (Source: Reuters) – China called on Iran on Tuesday to step up its cooperation with the International Atomic Energy Agency, as world powers raise pressure on Tehran to curtail its nuclear program.

  14. El Diablo said

    All permanent members of security council onboard with (meaningless) Iran sanctions…yawn

    March 15 – U.S. hopes for quick vote on Iran resolution

    The United States hopes for a vote soon on a new draft UN resolution to impose more sanctions on Iran for its defiance over its nuclear program, White House spokesman Tony Snow said at a briefing on Thursday.

    “They’re still working it out. I mean, I don’t think that the president has a timetable on it. But obviously, we think it’s going to be soon,” Snow said.

    Snow said that the new draft resolution will be presented to the full UN Security Council.

    Snow made the remarks after Britain, China, France, Russia, the United States and Germany agreed Thursday on a draft resolution imposing tougher sanctions on Iran.

    The text of the draft will be submitted to the 15-member UN Security Council Thursday and a vote is expected next week.

    The United States has accused Iran of trying to develop nuclear weapons under the cover of a civilian nuclear program. Iran has denied the charges.

    Source: Xinhua

  15. Cap said

    Zmann …. I don’t know if you ever visited the Corner blog; but they have pretty good daily coverage of Iran including a daily summary of various types of coverage …. just scroll through today’s posts and you will see what I mean.

    http://corner.nationalreview.com/

  16. M. Martin said

    My best guess is that Israel will make a strike on Iran nuclear targets sometime between March-May 2008 with US waiting in reserve to back up Israel in guess Iran gets ugly. This may lead to an oil spike close to $200 a barrel + or -.

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