Escalation of political tensions Mar. 23-25 appeared to threaten Middle East supplies and set the stage for another likely spike in crude prices.
Crude futures prices peaked at $62.65/bbl in intraday trading Mar. 23 in the New York market and settled at $62.28/bbl, up 59¢ for the day, after naval units of Iran's Revolutionary Guard seized eight UK sailors and seven Royal Marines who had boarded a merchant ship for inspection in Iraqi waters of the Persian Gulf.
Meanwhile, Iraqi Deputy Prime Minister Salam Zaubai underwent surgery Mar. 23 at a US military hospital after being injured in a double bombing in Baghdad in which nine people were killed. Iraqi police said a suicide bomber blew himself up and a car bomb exploded as Zaubai was leaving a mosque near his home in the Iraqi capital.
The United Nations Security Council voted unanimously over the weekend to tighten sanctions on Iran after Iranian President Mahmoud Ahmadinejad cancelled his planned appearance to defend his country's uranium enrichment program. The latest resolution embargoed all sales by Iran of conventional weapons and froze the foreign assets of 28 Iranian individuals, institutions, and companies, including Bank Sepah. It called for restriction of new financial grants, credits, and loans to Iran. A Dec. 23 resolution banned trade with Iran in sensitive nuclear materials and ballistic missiles.
Iranian officials said the UN's move will limit its cooperation with the Atomic Energy Agency, the UN's nuclear watchdog. Iran has 60 days to halt its uranium enrichment program or face new sanctions.
Analysts in the Houston office of Raymond James & Associates reported crude futures prices near a 3-month high in early trading Mar. 26. "Geopolitical concerns and supply disruption possibilities are on the forefront of traders' minds," they said. With the proposed build-up of US military forces in the region, analysts said, "The tension is expected to increase in the foreseeable future. Roughly a quarter of the world's oil supply flows through the Strait of Hormuz, a narrow waterway between Iran and Oman. Therefore, any transportation disruptions through that waterway would have a large impact on the world's crude oil supply."
UK demands release
In the interim, UK officials demanded the immediate safe return of military personnel seized as they concluded an inspection for possibly smuggled goods aboard a merchant ship just outside the Shatt al-Arab waterway dividing Iraq and Iran. Jurisdiction in that area has long been contested between the two countries. Iranian officials said they may charge the sailors and marines with violating its waters.
According to UK and US reports, ships of the Iranian Revolutionary Guard naval corpswhich operates separately from Iran's navydarted out of Iranian waters into Iraqi waters to capture the sailors and marines. There was speculation that the seizure might be in retaliation for US detention of five Revolutionary Guard operatives following a January raid on the Iranian consulate in Irbil, Iraq, as part of the effort to counter Iran's growing influence in Iraq.
Meanwhile, imports of Saudi Arabian crude by European members of the Organization for Economic Cooperation and Development steadily declined during 2006. Therefore, by keeping its OECD crude exports steady, Libya has taken over Saudi Arabia's former spot as the second largest supplier of crude to Europe OECD, behind Russia. Iraq, Venezuela, and Iran have helped replace former Saudi supplies to those European customers. "Imports from Algeria have dropped and [were] replaced with increases from Azerbaijan," said Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, in a Mar. 22 report.
Overall, OECD imports of OPEC crude were essentially unchanged in 2006 from 2005, with the largest difference coming from a drop of Saudi imports (mostly to Europe). "Algeria has decreased flows to Europe to rebalance instead towards North America and the Asia-Pacific. Venezuela on the other hand is reducing its exports to the US and increasing to Europe, while Iran is reducing exports to Asia-Pacific and increasing to Europe," Jakob said.
European imports of gas oilmiddle and light distillatesfrom North America have steadily increased. "While the US is by far the largest importer of European gasoline, European exports to Mexico have seen the largest increase, offsetting slightly lower exports to the US and Nigeria, while exports to Iraq have mostly phased out. Exports to Iran are stable [for] the year but mostly due to shipments in the first half of 2006 while they come down to a trickle in the official statistics for the fourth quarter 2006," Jakob said.
(Online Mar. 26, 2007; author's e-mail: firstname.lastname@example.org)