Iran-US tensions over Gulf send oil prices soaring

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Iran-US tensions over Gulf send oil prices soaring

Brent crude spot prices rise from $107 to $111 after Tehran threatens US aircraft carrier over use of crucial shipping route

• Phillip Inman, economics correspondent
• guardian.co.uk, Tuesday 3 January 2012 20.23 GMT

US navy ship in the Sea of Oman, near the Strait of Hormuz. Iran warned a US aircraft carrier would risk attack by its new surface-to-sea missiles if it returned to the Gulf. Photograph: Reuters


The price of oil jumped by $4 a barrel on Tuesday as tension between Iran and the US fuelled fears of disruptions to supply.
Brent crude spot prices rose from $107 to $111 after Iran threatened to take action if the US navy moves an aircraft carrier into the Gulf.
US light crude, which dropped below $100 a barrel before Christmas, hit $102.23 a barrel – a rise of $3.40 on the day.
Analysts said the jump in prices was likely to continue as long as Tehran appeared ready to use force against US warships patrolling the strategically vital strait of Hormuz at the mouth of the Gulf.

Iran's army chief, General Ataollah Salehi, warned a US aircraft carrier not to return to the Gulf or risk attack by new surface-to-sea missiles tested by the military in recent days.
Tehran's latest tough rhetoric over the waterway is part of a feud with the US over new sanctions designed to discourage the Iranian state from developing nuclear weapons.
Salehi spoke as a 10-day Iranian naval exercise ended near the strait of Hormuz. Iranian officials have said the drill aimed to show that Iran could close the shipping route, as it has threatened to do if the US brings into force strong new sanctions over Iran's nuclear programme.

The strait, leading into the Gulf of Oman and Arabian Sea, is the only possible route for tankers transporting crude from the oil-rich states of the Gulf to western markets. A sixth of the world's oil exports passes through it every day.
John Kilduff, a partner at the hedge fund Again Capital in New York, said better-than-expected manufacturing output by US firms, which is likely to boost the demand for oil, was also a factor in the oil price rise.

"The supportive economic data and the geopolitical concerns are furthering the crude oil rally," he said.
"The temperature is going up every day now on the Iran situation – new sanctions, new missile launches and sabre-rattling are all contributing," he added.
Oil prices have been trending downwards since last May, when it became apparent the recovery in Europe and the US was running out of steam. The euro crisis, which re-ignited in July, pushed prices down further. Brent crude peaked at $126 last May before falling by a fifth to $100 in October.

Salehi's warning to the US aircraft carrier USS John C Stennis not to come back seemed as if it was designed to further declare the strait and the Gulf as being under Iranian control, though there is little way for Tehran to enforce the warning without military action. The strait is divided between Iran and Oman's territorial waters, and international law requires them to allow free passage through it.

"We recommend to the American warship that passed through the strait of Hormuz and went to Gulf of Oman not to return to the Persian Gulf," the general was quoted as saying by the state news agency, IRNA.
He said Iran's enemies had understood the message of the naval exercises, saying: "We have no plan to begin any irrational act but we are ready against any threat."

 

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[h=1]Iran, US and Israel announce new war games as tensions rise in the Gulf[/h]Surge in military activity in the region comes amid threat of EU embargo on Iranian oil and possible closure of strait of Hormuz

• Julian Borger, diplomatic editor
  
• guardian.co.uk, Friday 6 January 2012 13.49 GMT

Iran's navy conducting the Velayat-90 naval war games in the strait of Hormuz on New Year's Day. Photograph: Mohsen Shandiz/Corbis


Tensions on the oil shipping lanes in the Gulf have escalated with the announcement of new naval exercises by Iran's Revolutionary Guards and news that Israel and the US are planning to carry out extensive joint manoeuvres in the region.

The naval commander for the Islamic Revolutionary Guards Corps (IRGC), Rear Admiral Ali Fadavi, said the drill in February would be "different compared to previous exercises held by the IRGC". The Iranian navy finished 10 days of exercises in the Gulf on Monday, during which it tested a range of new missiles. It warned that Iran could close the strait of Hormuz, the narrowest point in the Gulf, through which a fifth of the world's traded oil passes.

On the same day, the Israeli military said it was preparing for joint exercises with the US to rehearse missile defence and co-operation between the forces. The manoeuvres involve thousands of troops, have been planned for some time and were hailed by Israeli and US officials as their biggest joint drill.

Associated Press quoted an unnamed Israel official as saying the drill would test multiple Israeli and US air defence systems against incoming missiles and rockets in the next few weeks. Israel has developed the Arrow anti-ballistic system, which is designed to intercept Iranian missiles in the stratosphere, with the US.

The military activity in the region comes at a time of high tension. At the end of this month, EU foreign ministers are expected to agree to impose an embargo on Iranian oil imports, after a report in November by the UN's nuclear watchdog, the International Atomic Energy Agency (IAEA), confirmed western allegations that Iran had worked on nuclear weapon design.

Iranian officials have made clear they would view an oil embargo as an act of aggression, and could respond by closing the strait. The US and UK have said they would act to keep the shipping lanes open. Philip Hammond, the British defence secretary, said during a visit to Washington: "Disruption to the flow of oil through the strait of Hormuz would threaten regional and global economic growth. Any attempt by Iran to close the strait would be illegal and unsuccessful."

The sabre-rattling over the strait drove the price of crude to more than $100 a barrel. Meanwhile, there is continual speculation that Israel might attack Iran's nuclear programme, which Tehran says is for peaceful purposes, and which the west and Israel allege is a front for acquiring nuclear weapons, or at least a capacity to make them. Observers say all sides are flexing their muscles to deter their adversaries from taking aggressive action, but warn that heightened activity will increase the chances of an unplanned clash.

Mark Fitzpatrick, a former US state department official now at the International Institute for Strategic Studies in London, said: "I'm not predicting there is going to be a skirmish, but in the absence of established communications, the tensions and the activity raises the possibility of an unintended exchange of fire."

The USS John Stennis, a US aircraft carrier deployed to the region, is outside the Gulf and an Iranian navy commander has warned Washington not to bring it back. The US navy said it would continue to patrol the Gulf as normal.

Fitzpatrick said he did not think Iran would attack shipping through the strait of Hormuz "as it would be an invitation to the US to take wider action and attack its nuclear sites".

Another flashpoint could come in June, when US sanctions on the trade in Iranian oil come into effect. Gary Sick, an Iran expert and former White House policy adviser now at Columbia University, said such measures were "the equivalent of a military blockade of Iran's oil ports, arguably an act of war".

"The main reason why Iran's putative threat to close the strait of Hormuz was dismissed is because Iran also relies on the strait to export its own oil," Sick wrote in his blog. "But if Iran's oil revenue – 50% of its budget – is cut off, they would have little to lose by striking out at those they hold responsible, including passage through the strait of Hormuz.

"Iran cannot defeat the US navy, but the swarms of cruise missiles they could fire, both from shore and from their fleet of speedboats, could create havoc, as could the flood of mines they could put into the fast-moving waters of the strait."

Fitzpatrick said even under sanctions, Iran would still have "multiple markets for its oil", and would therefore still have a lot to lose by closing the strait.

 

[BAK]

Iran, US and Israel announce new war games as tensions rise in the Gulf

Surge in military activity in the region comes amid threat of EU embargo on Iranian oil and possible closure of strait of Hormuz

• Julian Borger, diplomatic editor
• guardian.co.uk, Friday 6 January 2012 13.49 GMT

Iran's navy conducting the Velayat-90 naval war games in the strait of Hormuz on New Year's Day. Photograph: Mohsen Shandiz/Corbis


Tensions on the oil shipping lanes in the Gulf have escalated with the announcement of new naval exercises by Iran's Revolutionary Guards and news that Israel and the US are planning to carry out extensive joint manoeuvres in the region.

The naval commander for the Islamic Revolutionary Guards Corps (IRGC), Rear Admiral Ali Fadavi, said the drill in February would be "different compared to previous exercises held by the IRGC". The Iranian navy finished 10 days of exercises in the Gulf on Monday, during which it tested a range of new missiles. It warned that Iran could close the strait of Hormuz, the narrowest point in the Gulf, through which a fifth of the world's traded oil passes.

On the same day, the Israeli military said it was preparing for joint exercises with the US to rehearse missile defence and co-operation between the forces. The manoeuvres involve thousands of troops, have been planned for some time and were hailed by Israeli and US officials as their biggest joint drill.

Associated Press quoted an unnamed Israel official as saying the drill would test multiple Israeli and US air defence systems against incoming missiles and rockets in the next few weeks. Israel has developed the Arrow anti-ballistic system, which is designed to intercept Iranian missiles in the stratosphere, with the US.

The military activity in the region comes at a time of high tension. At the end of this month, EU foreign ministers are expected to agree to impose an embargo on Iranian oil imports, after a report in November by the UN's nuclear watchdog, the International Atomic Energy Agency (IAEA), confirmed western allegations that Iran had worked on nuclear weapon design.

Iranian officials have made clear they would view an oil embargo as an act of aggression, and could respond by closing the strait. The US and UK have said they would act to keep the shipping lanes open. Philip Hammond, the British defence secretary, said during a visit to Washington: "Disruption to the flow of oil through the strait of Hormuz would threaten regional and global economic growth. Any attempt by Iran to close the strait would be illegal and unsuccessful."

The sabre-rattling over the strait drove the price of crude to more than $100 a barrel. Meanwhile, there is continual speculation that Israel might attack Iran's nuclear programme, which Tehran says is for peaceful purposes, and which the west and Israel allege is a front for acquiring nuclear weapons, or at least a capacity to make them. Observers say all sides are flexing their muscles to deter their adversaries from taking aggressive action, but warn that heightened activity will increase the chances of an unplanned clash.

Mark Fitzpatrick, a former US state department official now at the International Institute for Strategic Studies in London, said: "I'm not predicting there is going to be a skirmish, but in the absence of established communications, the tensions and the activity raises the possibility of an unintended exchange of fire."

The USS John Stennis, a US aircraft carrier deployed to the region, is outside the Gulf and an Iranian navy commander has warned Washington not to bring it back. The US navy said it would continue to patrol the Gulf as normal.

Fitzpatrick said he did not think Iran would attack shipping through the strait of Hormuz "as it would be an invitation to the US to take wider action and attack its nuclear sites".

Another flashpoint could come in June, when US sanctions on the trade in Iranian oil come into effect. Gary Sick, an Iran expert and former White House policy adviser now at Columbia University, said such measures were "the equivalent of a military blockade of Iran's oil ports, arguably an act of war".

"The main reason why Iran's putative threat to close the strait of Hormuz was dismissed is because Iran also relies on the strait to export its own oil," Sick wrote in his blog. "But if Iran's oil revenue – 50% of its budget – is cut off, they would have little to lose by striking out at those they hold responsible, including passage through the strait of Hormuz.

"Iran cannot defeat the US navy, but the swarms of cruise missiles they could fire, both from shore and from their fleet of speedboats, could create havoc, as could the flood of mines they could put into the fast-moving waters of the strait."

Fitzpatrick said even under sanctions, Iran would still have "multiple markets for its oil", and would therefore still have a lot to lose by closing the strait.