Other nations promise help if Iran cuts off oil supply

Stephen Beard Dec 28, 2011

Adriene Hill: Oil prices are down a bit this morning after a Saudi oil official said his country would pump more crude. That follows Iran’s threat to block the Strait of Hormuz, where about one fifth of the world’s oil passes through. Iran says it’s angered by international warnings of further sanctions over nuclear plans.

Marketplace’s Stephen Beard joins me now live. Good morning Stephen.

Stephen Beard: Hello Adriene.

Hill: So, how big a deal is this be for world oil supply?

Beard: We’re talking about a great deal of oil passing through a very narrow waterway that links the Persian Gulf with the outside world. An Iranian blockade is potentially the biggest threat to world oil supplies in recent years — worse even than the Libyan situation.

Here’s Samuel Cizik of the consulting group, KBG Energy Economics.

Samuel Cizik: It was tough enough to handle Libyan crude exports being shut in earlier this year. This would be on a completely different scale. So, it’s a nightmare scenario.

Hill: But the price of oil has actually dropped today. Is this a credible threat we’re hearing?

Beard: Though potentially horrendous, it’s not totally credible. Remember, a blockade could be an act of war against other Persian Gulf oil producers. Most are allies of the U.S., and the U.S. has its Fifth fleet based in the region. And undoubtedly, U.S. warships could defeat the blockade by giving safe passage to oil tankers through the Gulf. Nevertheless, there is a threat of disruption.

Hill: Now, the Iranians issued this threat because the Europeans are pushing for new sanctions over Iran’s nuclear program. Would more sanctions result in higher oil and gas prices?

Beard: Perhaps not. I mean, this is a big global market we’re talking about. The U.S., of course, doesn’t take any Iranian oil. But China, Japan, India, South Korea all take a lot of Iranian oil and it’s likely they will take a lot more oil if the EU stops taking those supplies.

Hill: Marketplace’s Stephen Beard, in London, thanks.

Beard: OK Adriene.

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