The “Arab Spring” that ousted four authoritarian leaders—including Ali Abdullah Saleh who in late November gave up the presidency of Yemen after 33 years in power—might evolve into a grimmer period with the possibility of a nuclear winter headed into 2012.
The International Atomic Energy Agency report that Iran’s nuclear program is aimed at producing weapons indicates “a lethal brew when combined with a Middle East that is already in turmoil,” said analysts in the Houston office of Raymond James & Associates Inc. “If Washington will not force the issue, Israel almost certainly will.” Indeed, Israel’s air force unilaterally took out suspected nuclear facilities in Iraq back during the Regan administration, resulting in a tongue-lashing from then Vice-President George H.W. Bush. So today’s “increasingly limited timeframe to stop Iran from going nuclear means the likelihood of a major military confrontation is now a very important consideration for energy investors,” Raymond James analysts reported.
Iran is the biggest Middle East oil producer behind Saudi Arabia and sits on the Strait of Hormuz where it could threaten Saudi crude exports through the Persian Gulf. The US Navy suffered casualties escorting tankers through those waters during the Iran-Iraq war.
The French president called for an embargo on Iranian oil. But that would be a “struggle for the European southern peripheries, i.e. the same countries that are suffering the most from credit issues,” said Olivier Jakob at Petromatrix in Zug, Switzerland. “While it is relatively easy (and not very courageous) for countries that do not import Iranian crude to call for an embargo, it will be very difficult for countries that do import Iranian oil to join in such non-[United Nations] sanctions. China has joined Russia in refusing further sanctions on Iran so one can forget for now any UN-backed sanctions.”
Middle East unrest
Meanwhile, thousands of protestors have again taken to the streets in Cairo, and Saudi security forces fired on protesters, wounding several, in the Shiite region of Al-Qatif in late November.
However, Raymond James analysts declared, “When it comes to internal unrest, it is Iran's close ally Syria that seems to be approaching a point of no return. Similar to Libya early in its uprising, what began as peaceful protests against [Syria's President Bashar] Assad is increasingly turning into an all-out civil war.”
Syria is a minor oil producer, normally pumping 350,000 b/d and exporting one third of this, but these sales are a crucial source of hard currency for the regime. The European oil embargo against Syria appears to be working, with Syria's storage tanks full and the government cutting back on production, said analysts.
Despite a tightening market, James Zhang at Standard New York Securities Inc., the Standard Bank Group, expects no major change in production quotas at the Organization of Petroleum Exporting Countries’ Dec. 14 meeting in Vienna. “The last meeting in June ended with a fierce divide over production quotas, with Saudi Arabia and Kuwait advocating a production increase but being held back by other members. Consequently, no changes…were made. In response, the International Energy Agency released 60 million bbl [of crude and products] from member countries’ strategic reserves.” A repeat of the IEA action is not expected this time, since Saudi Arabia and Kuwait, the two OPEC members with the greatest spare capacity, have increased production to compensate for Libyan supplies halted by its civil war. “In fact, Saudi’s crude oil production has surpassed its record of 2008,” said Zhang.
Moreover, he said, “Global macroeconomics have deteriorated since the last OPEC meeting in June: China’s economy is slowing down, and there is a significant risk of a Euro-zone recession. China is unlikely to reverse its policy tightening in the near term, and the Euro-zone debt crisis seems interminable. Under these circumstances, OPEC would probably be unwilling to put further downward pressure on oil.”
(Online Nov. 28, 2011; author’s e-mail: email@example.com)