Oil price to hit $175-$200 if Israel attacks Iran: analysts

Oil prices could surge to $175-200 per barrel if Israel attacks Iran’s nuclear facilities, leading to the closure of an important oil route, according to market observers. Tensions between the two arch foes have escalated after the International Atomic Energy Agency reported it had ‘credible’ evidence of Tehran’s nuclear weapons plan.

In a survey of oil traders, Washington D.C.-based Rapidan Group said that participants expected an $11 rise in the price of a barrel in the immediate aftermath of an Israeli attack.

“Participants said prices could rise by $61/bbl under the prolonged disruption scenario where IEA [International Energy Agency] stocks are used. The scenario includes price change 30 days after an Israeli strike, and assumes a 21-day disruption of oil traffic through the Strait of Hormuz before returning to normal throughput of 15.5 million b/d. IEA countries offset half the loss with around 8 million b/d,” the Financial Times quoted from the report.

“Participants said prices could rise by $175/bbl under Rapidan’s prolonged disruption scenario, where no IEA stocks are used. The scenario looks at price change 30 days after an Israeli strike, and it assumes a 21-day disruption of the Strait of Hormuz before returning to normal throughput of 15.5 million b/d.”

The Strait of Hormuz is the world’s most important oil route, with 40% of the world’s oil passing through the narrow sea route between the Gulf of Oman and the Persian Gulf.

The IAEA findings came weeks after the United States said it unearthed a plot by Iranian agents to kill the Saudi ambassador to the U.S.

“Iran is the most important latent threat in the oil market,” Robert McNally, head of the Rapidan Group, told Platts Energy last week, partly because previous threats against Iran over the years have not materialised, and also as Arab Spring has stolen the limelight from Iran during the past ten months.

McNally noted that oil traders would not have ignored the alleged-Iranian plot to kill the Saudi ambassador had there been a Republican U.S. President, rather than Democrat Barack Obama, despite his hawkish stance on Iran.

Meanwhile, independent consultant Philip Verleger told the Financial Times that the Strait of Hormuz closure is a “$200-a-barrel scenario”.

Verleger correctly predicted in August 1990 the price rally after Iraq invaded Kuwait, the FT noted.

This is not such a far-fetched scenario as crude prices are gearing up to hit $150 as global markets show some signs of improvement and demand ramps up.

The International Energy Agency reported today that oil prices could hit $150 in the near-term if the energy sector remains under-invested.

“If between 2011 and 2015 investment in the MENA region runs one-third lower than the $100 billion per year required, consumers could face a near-term rise in the oil price to $150 per barrel,” the IEA said in its annual World Energy Outlook.

Oil prices have been historically high this year, with North Sea Brent crude oil futures averaging well over $100 per barrel, partly due to the loss of oil production from Libya during its civil war.

Religare, a U.K. based investment bank focused on emerging markets, has also raised the probability of an Israeli attack on Iranian nuclear facilities from 5% in March to 40% in October.

“From a comfortable level of 0% last year, we put the chances of an attack on Iranian nuclear facilities at 5% in March, 15% in June, 20% in September and then finally upgraded it to 40% in October, although we cautioned that it was highly unlike to occur before the IAEA directors meeting in mid-November, after which it would rise to this point,” said strategist Emad Mostaque.

“We maintain our position and see December as the most likely point (Christmas day would especially annoy everyone), diminishing back to 15-20% once we get through to mid-January as Iranian enrichment progresses to dangerous levels and the pace of rhetoric subsides.”

Financial Post