December 13, 2007
This Nearly two years ago, on January 10th, 2006, Iranian leader Mahmoud Ahmadinejad raised the stakes in a battle of wits between Tehran and the Bush administration, ordering the removal of UN seals on centrifuges to enrich uranium, a process which can make atomic reactor fuel or weapons-grade material. “We are not going to yield to pressure to abandon our rights, and we have the necessary tools to protect ourselves,” Ahmadinejad told the Qatari foreign minister.
Ahmadinejad’s daring move quickly set off a “war of words” with US President George Bush and vice-president Dick Cheney, which in turn, built-up an Iranian “war premium” of roughly $12 per barrel into the price of crude oil. On January 19, 2006, Cheney warned, “Whether or not there would be a spike in the price of oil, if in fact there is some kind of a crisis with Iran is entirely possible. But I think the consequences of that would be less significant than the consequences of having Mahmoud Ahmadinejad armed with nuclear weapons,” Cheney told CNBC.
The unrelenting “war of words” between Tehran and the Washington neocons reached a climax on Oct 17, 2007, when Bush suggested that if Iran obtained nuclear weapons, it could lead to war. “I’ve told people that if you’re interested in avoiding World War III, it seems like you ought to be interested in preventing Iran from having the knowledge necessary to make a nuclear weapon,” he warned.
But on Dec 3rd, the latest US National Intelligence Estimate was released, and effectively destroyed a four-year diplomatic effort by the Bush administration to isolate Iran over its nuclear weapons program. The US spy agencies have done another 180-degree turn, and now say the mullahs of Iran abandoned their nuclear weapons program in 2003, lifting the American military axe from over Iran’s nuclear and economic infrastructure.
The Pentagon’s top brass, led by chairman of the US Joint Chiefs of Staff Admiral Michael Mullen, US defense chief Robert Gates and Admiral William Fallon, commander of the US Central Command, rubber stamped a US spy report, that squashed mounting speculation of a US aerial attack on Iran during Mr Bush’s final year in the White House. The US military contributes nine of the 16 intelligence agencies whose views are cobbled together into the NIE.
Tehran knows it holds the ultimate “trump card”, in its high stakes confrontation with the Bush clan. In March 2005, Iranian Expediency Council secretary Mohsen Rezai first raised the prospect of Iranian retaliation against all Middle Eastern oil exports. “An attack on Iran will be tantamount to endangering Saudi Arabia, Kuwait and in a word, the entire Middle East oil. Iran could easily block the Straits of Hormuz and use its missiles to strike tankers and GCC oil facilities,” he warned.
About 40% of the world’s crude oil exports pass through the two-mile wide channel of the strategic Straits of Hormuz, with Iranian military forces deployed at the head of the channel. Seeking to avoid a spike in crude oil to $200 per barrel, the Bush administration pursued a dual track policy of “psychological warfare” with Iran through the media, while trying to enlist other nations to enact economic sanctions against Iran, in a failed effort to stop Iran’s quest for nuclear invincibility.
Just 18% of American voters believe the NIE claim that Iran has halted its nuclear weapons program. The latest Rasmussen Reports national telephone survey found that 66% disagree and say Iran has not stopped its nuclear weapons program. But the odds of a US / Israeli strike on Iran before December 2008, according to online futures markets, have plummeted from 50% in November to 18% today.
The other casinos where bets on war in the Middle East are made each day are the crude oil markets in London and New York. “The market is increasingly driven by forces beyond OPEC’s control, by geopolitical events and the growing influence of financial investors,” said Mohammed bin Dhaen al-Hamli who is the UAE oil minister.
Just prior to the bombshell NIE report, there was erroneous speculation that Saudi Arabia would agree to increase in its daily oil output by anywhere from 500,000 to 750,000 bpd, as a gift to its military patron in Washington. Speculation of a Saudi oil output hike knocked the price of crude oil from a record high of $99.25 /barrel on Nov 26th, to around $87 /barrel a week or so later, but in retrospect, the slide in oil prices was simply wiping out the $12 /barrel Iranian “war premium”.
On Dec 5th, Riyadh sided with the hawks of OPEC – Libya, Iran, and Venezuela, and refused to increase its oil output, citing ample global oil inventories. Saudi king Abdullah had escorted Iranian president Mahmoud Ahmadinejad along a red carpet just two days earlier, and saw eye to eye with his Persian neighbors. “Our position is that demand and supply are balanced and there is no need to increase oil to the market,” said Iranian Oil Minister Gholamhossein Nozari.
Anticipating a tight fisted OPEC this winter, the US Energy Information Agency said on Dec 11th that global oil demand in Q’1 of 2008 would climb to 87.4 million bpd, up 2% from a year earlier, and exceeding global supply, forcing oil consuming countries to dip into their emergency oil inventories. “OECD nations will have just 49.3 days of forward crude oil supply cover by February 2008, the lowest inventory buffer since December 2004, as demand growth outpaces supply” the EIA warned.
The Saudi shift into the hawkish camp of OPEC threatens to unravel the latest recovery in the Dow Jones Industrials, which rallied 1,000-points towards the 13,800 level, on high hopes that crude oil had topped out, and would slide towards $75 per barrel. Instead, OPEC’s hard-line put a floor under crude oil at $87 /barrel, and “black gold” zoomed above $90 per barrel a week later, after the Bernanke Fed lowered the fed funds rate to 4.25%, and announced a plan to inject tens of billions of dollars into the banking system, whetting the appetite of crude oil speculators, and investors seeking a hedge against monetary inflation.
To make matters worse, internal oil consumption in the five biggest oil exporting nations - Saudi Arabia, Russia, Norway, Iran and the United Arab Emirates is growing at a 6% annualized rate, forcing their governments to reduce oil exports by 3 percent. If sustained, that could reduce their crude oil exports as much as 2.5 million barrels a day by the end of 2010.
As a consequence, “Oil prices will hit $100 a barrel before dipping to $80,” Texas oilman and trader T. Boone Pickens predicted on Dec 11th. “Get ready for $100, it is coming up. A hundred dollars will come before $80. You’ll see $100 oil within the next six months. A hundred dollars is going to become routine,” he declared.
Gary Dorsch
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