Thoughts on Iran and Oil

Now that it looks like the captured/arrested (delete as politically acceptable) British servicemen are to be released – how does this effect the oil price?

oil_4_apr.gif(click for full size version)

Oddly enough – the oil price dropped quite heavily yesterday, the markets probably reacting to the change in stance by Iran and assuming that tensions had been reduced. The news today (the 4th) that the Brits are to be released seemed to make little or no difference to the price of crude, leaving it 50 cents or so down on the day.

I suspect that oil traders don’t consider the threat to disruption in the region over, and probably view the whole hostage crisis to be an indicator of rising tension across the middle east. Make no mistake – although this “crisis” may have been averted the situation over there is extremely delicate. Iran is rapidly becoming the premier risk to stability in the region with training and supplying militants in Iraq, skirmishing on the Iran-Iraq border and its nuclear ambitions all points for concern. Although the a conventional attack is unlikely, you can bet that plans are already afoot to confront Iran on these issues.

The countries that would suffer most from an Iranian oil disruption most are those in Asia. China for example, imports vast quantities of Iranian oil. With the latent instability in many of the Asian markets an oil shock could send the markets tumbling.

It’s odd that we hear about a new era of stability in financial markets. There is huge potential for it to come to an end with a bang.

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