Iran might respond to sanctions with 'low-level provocation' such as slowing shipping through the Strait of Hormuz, keeping oil prices at their currently high level, according to three Standard & Poor’s (S&P) reports.
The likelihood of severe disruption of oil supplies through the strait, through which 20 percent of the world’s oil flows, is 'very low,' though if one did occur, it might boost oil to US$150 a barrel and push economies into a recession, according to the reports. “For oil-producing sovereigns of the Gulf Cooperation Council - Saudi Arabia, UAE, Qatar, Kuwait, Oman, and to a lesser extent, Bahrain - higher oil prices would actually be beneficial,” said Elliot Hentov, an S&P credit analyst in Dubai. “As oil exporters, they would receive more foreign earnings that they could either use to stimulate demand or improve their government’s balance sheets.”
Speaking earlier to Muscat Daily, Robin Mills, energy economist with Emirates National Oil Company, said Oman has a particular advantage over other Gulf countries, in it being outside the Strait of Hormuz. Its exports are less vulnerable to military action. He said, “A reduction or re-targeting of Iranian oil exports might increase the price that Gulf oil exporters can expect. Certainly tensions have been increasing prices in recent weeks. “However, since Oman does not have spare production capacity, it is not able to increase its overall exports, unlike Saudi Arabia, Kuwait or UAE.”
Iranian authorities could disrupt supplies of oil from the Arabian Gulf by imposing tanker inspections or boarding merchant ships in its territorial waters, supporting oil prices because markets would increasingly view armed conflict as “a real, if remote, possibility,” according to the S&P reports’ authors, who include Paris-based Jean-Michel Six, S&P’s chief economist for Europe.
The US and the European Union are imposing tougher sanctions on Iran and Israel has talked of an attack on Iran’s nuclear facilities in an attempt to halt its nuclear programme. Iran, which says its nuclear programme is for civilian purposes, has threatened to block the Strait of Hormuz in retaliation.
