Middle East tensions with Iran and rising oil costs

Reuters photo
Reuters

As the costs of oil rise due to rising tensions in the Middle East over Iran’s nuclear program,  Iran’s deputy oil minister decided on Sunday to cut oil supplies to England and France.  Oil experts believe that the new supply cut will have a minimal impact on the oil industry since only 3% of Iranian is headed to France while England has not imported oil from Iran over the last 6 months.

The decision to cut oil supplies to France and England is a largely symbolic move which comes at the heels of Europe’s renewed focus to continue with sanctions on Iran’s government over their nuclear program.

The 27 European Union region accounts for 18% of oil exports from Iran, the fifth largest oil supplier in the world. The oil embargo and freeze of Iran’s central bank assets is set to begin in July. China has also agreed to decrease their exports of Iranian oil. The imposed sanctions are already beginning to hurt the economy in Iran for millions of Iranians while inflation levels are rising. Iran holds parliamentary elections on March 2nd.

Khaleej Times reported that Iran’s Deputy Oil Minister Ahmad Qalebani, who also leads the National Iranian Oil Company, warned that a cut in Iranian oil exports announced on Sunday against France and Britain could be expanded to other EU nations. “Certainly if the hostile actions of some European countries continue, the export of oil to these countries will be cut,” said Ahmad Qalebani.

Minister Qalebani also claimed that the price of oil will “reach $150 a barrel.”

Today the price of  Brent crude oil last traded at 120.04 a barrel while crude oil light sweet traded at 104.92 on the NYMex. Iran generates higher oil revenues in the oil market due to rising volatility that Iran’s government is capable of impacting in the market to offset the loss of demand as a result of the oil embargo and decrease in oil exports.

Iranian leaders in Tehran claim that their nuclear program is only for civilian purposes while several countries across the Middle East and the rest of the world are concerned that Iran is using their civilian nuclear program as a cover for research and development of nuclear atomic bombs. Iran has demonstrated a lack of transparency in the past regarding their nuclear program and their President Mahmoud Ahmadinejad previously made inflammatory comments about Israel that were were widely criticized. 

On Sunday U.N. inspectors left Vienna and arrived in Iran for more nuclear talks. Some analysts believe that Iran is deliberately using their nuclear talks with U.N. inspectors as a delay tactic and propaganda tool to show the world that they are open to dialogue while failing to grant full access to Iran’s most secretive sites such as the Parchin military complex, an Iranian military base and conventional weapons development facility in the outskirts of Tehran, suspected of holding an underground facility.

Parchin complex

 Iran’s state controlled media announced on Monday the U.N. inspectors would like to meet Iranian nuclear scientists and visit the Parchin military complex. U.N. inspectors previously visited the site in 2005 but they were only given access to only one of four areas of potential interest within the remote complex. 

Israel is increasingly concerned about Iran’s ability to develop nuclear weapons. Speculation has grown about the possibility of Israel conducting a bombing raid at different nuclear facility sites across Iran. On Monday Iran began to deploy warplanes and missiles in an exercise intended to protect nuclear facilities that are potentially threatened by an air assault by Israel’s air force. 

The United States and England have asked Israel to avoid conducting an air assault on Iran.  Israel PM Benjamin Netanahu will meet with President Obama at the White House on March 5th, officials said.

As the cost of oil rises, the economic impact will be felt across the world. Rising oil costs can impact discretionary spending levels in the wider economy which can trickle down and negatively influence corporate balance sheets. During an election year when the economy, energy, and foreign policies are widely debated and scrutinized, the topic of rising oil costs and Middle Eastern tensions in Iran can influence how American voters decide to vote.

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