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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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The Critical Chokepoint That Could Send Oil To $250

Strait of Hormuz

Crude oil prices could jump as high as US$250 a barrel if Iran goes through with its threat to close the Strait of Hormuz in response to U.S. pressure on oil buyers to cut their Iranian purchases to zero, RT reports, quoting analysts.

The most bullish among these analysts was Artem Avinov from online broker TeleTrade, who saw prices skyrocketing to US$250 a barrel if the Strait of Hormuz is blocked, disrupting about 17 million bpd in seaborne oil trade. Avinov, however, added that this course of events is very unlikely, suggesting Iran would instead opt for “a quick economic or military retaliation, which will lead to the lifting of restrictions.”

Another analyst, from Global FX, said he expected prices to hit US$160 per barrel in the event of a Hormuz blockade, following a warning from the Iranian Revolutionary Guards that they might close the chokepoint as it must be “for all or for no one,” as reported by news agency Tasnim.

Expectations of a sharp increase in international oil prices are only normal in the current geopolitical situation, and yet these expectations tend to be predominantly hypothetical. Few seem to believe that Iran will actually go all the way and—for the first time in history—make good on its threat to close off Hormuz. Related: Do Trump’s Tweets Point To Another Oil Crisis?

What’s more, the U.S. Fifth Fleet is stationed right there to ensure the safe passage of oil cargoes from its Arab allies in the Middle East. Any attempt at a blockade would be interpreted as a direct military confrontation. This would certainly push prices higher, but hardly as high as US$250 a barrel.

For now, however, prices appear to be stable, with Brent hovering around US$77 a barrel for most of last week, as upward pressure from the Iran sanctions was met and offset by downward pressure from the tariff spat between the United States and China, where everyone now expects China to announce tariffs on crude oil imports.

By Irina Slav for Oilprice.com

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  • Tom Blazek on July 09 2018 said:
    I want to express my Extreme Disappointment in Senators John Barrasso of Wyoming and Ted Cruz of Texas for blocking all things ethanol. So here we are, getting ready to potentially shed our Children’s Blood over Oil, while these two Senators have worked tirelessly to block ethanol as a greater supplement to our fuel supplies. Since these two Senators have been so instrumental in Blocking E-15 from being available year-round, Perhaps these two Senators and their Supporters should be the first to go Shed their Blood for the Strait of Hormuz and its Oil. After All, that's how they have voted.
  • Vishwas on July 09 2018 said:
    Any logic to justify higher oil prices! Iran cannot block the route. The cost will be too high for Iran itself. They are not fools. Sometimes wonder whether Saudi is funding a few to buy and hoard crude? There is all round fall in diesel and gasoline consumption in the developed world. India is the only major economy that failed in EV initiative and have increase in oil demand. .
  • Mamdouh G Salameh on July 09 2018 said:
    We must first differentiate between projections based on some realistic assumptions and flights of fantasy.

    The Strait of Hormuz at its narrowest point is 34 miles wide. So militarily, it is virtually impossible for Iran to block it. However, Iran can achieve its objectives by mining the Strait and hoping that one of its mines hits an oil tanker and sinks it. Alternatively, it is enough for Iran to threaten sinking one oil tanker crossing the Strait to stop oil tankers from around the world crossing the Strait even with US navy escort.

    Moreover, most of the major global insurance companies would then hesitate to provide insurance cover to tankers in the face of Iranian threats thus preventing them from crossing the Strait.

    Last but not least, Iran could endeavour to sabotage major Saudi oil installations including the Ras Tannura, the world’s biggest crude oil loading terminal aiming to disrupt Saudi oil shipments
    .
    A mining of the Strait of Hormuz could send oil prices to $125-$135 a barrel for a short while mine-clearing operations by the US Navy are taking place.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Scott on July 09 2018 said:
    It is high time to end the Cornoplia. Ethanol makes absolutely ZERO sense. It has done nothing but inflate land prices and create a balloon market that should not exist. End ALL subsidization of ethanol. The only reason this will not happen is because of special interest lobbying. Ethanol is a bad joke. To expend fuel to grow more fuel is equivalent to chasing ones own tail. It's created millionaires no doubt, and accomplished nothing else good.
  • VirginiaOsprey on July 09 2018 said:
    Iran starting something serious in the straits gives the US not only the chance to fully ravage Iran’s total oil infrastructure, and—the cherry on top—take out their total energy infrastructure. Nothing like the opportunity to take Iran back to biblical times living and a biblical times economy. Let’s see how long the mullah last without electricity! LOL
  • Mr Bippy on July 09 2018 said:
    Why stop at $250? Why not $1000 a barrel?
  • Zak Aslam on July 09 2018 said:
    Does the United states understand what this will do to the Markets ?? Iran has over 20 thousand sea mines , anti-ship missiles and midget subs .... If one oil tanker takes a hit its game over as oil prevents radars from detecting mines and subs , Second point to take note is Iran will mine areas outside the Strait of Hormuz , and target oil tankers across the world .. HOW WILL THE USA stop this in time to save the world economy ? IF USA Targets Iranian oil facilities then the Iranians will target Saudi oil storage facilities , and Iraq oil facilities , and the united Arab Nations , This is incredible that no-one understands the USA is not fighting Donkey riding Taliban army armed with soviet era RPGs.. Oil Tankers of today take years to build and are easy targets , Iran will arm terrorists around the world to take out oil tankers with anti-ship missiles
  • Tom Blazek on July 09 2018 said:
    "Cornoplia" - Why I like Ethanol

    It's 113 Octane, If you happen to think octane is important.

    Ethanol Octane Doesn't give you Cancer like Hydrocarbon Octanes do, such as Benzene, Toluene and Xylene.

    Ethanol is clean burning, significantly reducing harmful ultra fine particulate matter in vehicle exhaust.

    Ethanol is low carbon, and has a carbon foot print of about 55% of that of gasoline.

    Ethanol is renewable, that means it is replaceable year after year.

    Ethanol is here, not over there, that means you don't have to send our Navy over to the Middle East to make sure it comes over here.

    When Hurricane Harvey Hit Houston and shut down a significant portion of US Refining Capacity, we didn't lose a single ethanol plant. Security in Diversity, not all our eggs in the Gulf Coast Refining Basket.

    Ethanol can give us high octane fuels for less than the cost of 87 Octane Regular Today. How about that.

    It's foolish to think that ethanol is going away. It simply has too many real advantages. The trouble is Oil Companies are too Blind to seize its value in competing with the Electric Car.

    Oil and Ethanol have the same future, its way past time for the API and Big Oil to figure that out, and start capturing some of ethanol's many benefits for the American Public.
  • Greg on July 10 2018 said:
    Why not build a few pipelines across the point of land on the Saudi side? That would circumnavigate the straight entirely. Iran would be out of the picture. They could patrol the pipelines with security 24/7.
  • Greg on July 10 2018 said:
    Why not build a few pipelines across the point of land on the Saudi side? That would circumnavigate the straight entirely. Iran would be out of the picture. They could patrol the pipelines with security 24/7.
  • Masked Avenger on July 10 2018 said:
    The economy is slowing on 70.00 oil. It would die at 250. Oil is being replaced. It will take some but everytime oil/gas rises, oil becomes a burden. If oil wants to remain relevant, the vhf price needs to fall. The oil industry is the only industry i have seen slit it's own throat over greed. High oil destroys the world economy. The glut continesbad to the lies. Watch and learn..... again.
  • Dr Lukas F Olsnes-Lea on August 29 2018 said:
    Geothermal energy in abundance will push oil prices to new low levels!

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