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Greece and Syria are the two international stories dominating the attention of the press at present, but they could soon be replaced by the rapidly escalating tensions between the West and Iran. Sanctions imposed on the latter are increasingly strangling Iran’s oil income, with most major ship-owners now refusing to go to the country. The clincher was the EU’s decision on January 23rd to place an embargo on Iranian oil, in particular the ban on ship insurance to the country. According to Bloomberg, 95% of Europe’s tanker fleet is insured under European law, and these tankers are no longer able to get insurance. As a result, Iran’s oil is trapped at its terminals. Iran accounts for 11% of the world’s oil production.
In response, Iran has been threatening to block shipments of oil through the Straits of Hormuz, through which 20% of the world’s oil is transported. Both China and India at this stage have said that they will not reduce oil imports from Iran. Brent crude has jumped by 7% this month alone, to USD 118 per barrel currently. Over the weekend, Iranian President Ahmadinejad announced that he was set to announce a “major nuclear accomplishment” in a clear attempt to further ratchet up international angst.
The way things are shaping up, this situation is likely to only get worse. Financially, a sharp rise in oil prices at this incredibly delicate time for the global economy would be very problematic.
