January 5, 2012
The price of oil has spiraled upward to an eight month high as the European Union considers imposing a full ban on purchases of Iranian crude.
European governments have settled differences on the ban, signaling that the embargo will likely go forward. “A lot of progress has been made,” an anonymous EU diplomat told Reuters. “The principle of an oil embargo is agreed. It is not being debated any more.”
The embargo follows a new round of economic sanctions signed into law by Obama on New Year’s Eve.
French Foreign Minister Alain Juppe told the French newspaper Le Figaro on Wednesday that the embargo will probably be in place by January 30.
In Europe, the price of benchmark crude for February delivery stood at $102.77 a barrel yesterday. In London, Brent crude was up 1 cent at $113.71 a barrel in intraday trading on the ICE Futures exchange. On the New York Mercantile Exchange, crude was at $102.9 in electronic trading. On Tuesday, the contract climbed to $103.22, the highest close since May 10. Prices advanced 8.2 percent in 2011, their third annual increase, according to Bloomberg.
“I fear we may be blundering toward a crisis nobody wants,” Helima Croft, senior geopolitical strategist at Barclays Capital, told the New York Times. “There is a peril of engaging in brinkmanship from all sides.”
Iran has promised to close the vital Strait of Hormuz if additional sanctions are imposed on the country. The Islamic nation staged a ten day military exercise demonstrating its capacity to close the waterway where close to one-fifth of the world’s oil passes on its way to market.
“If they (the West) impose sanctions on Iran’s oil exports, then even one drop of oil cannot flow from the Strait of Hormuz,” Mohammad Reza Rahimi, the Iranian vice president, warned last month.
“All it would take for Iran is a few mines put into sea, and ship owners and insurance companies would not go up there,” Roy Jordan, of FACTS Global Energy, told The Telegraph on Thursday.
According to analysts, a closure of the strait would raise the world price of oil within days by $50 a barrel or more and price would ultimately reach more than $200 per barrel. Regular gas would surpass $4 per gallon almost immediately.