Intelligence Briefing: 01.30.12
Posing Problems But Not Closing the Strait
Summary: As outlined in last week’s Global Crude Oil Outlook, the price of WTI at $100 (and Brent at $111) reflects an uncertainty premium (perhaps mirroring shipping insurance premiums) related to the outcome of the U.S. financial sanctions and European oil embargo against Iran. As outlined last week, absent Iranian military action of some sort in the Persian Gulf, the volume of Iranian crude exports that might end up distressed (inventoried, hard to sell or sold at discount) is probably on the order of 600-700,000 b/d. Ironically, If Iran ends up discounting crude to move it to new customers, the result could be lower prices. What is not quite reflected in $100 oil is the impact of shutting the Strait of Hormuz altogether, which would certainly trigger a price rally. Most naval analysts believe Iran will not succeed in shutting or keeping shut the Strait. The following describes the naval response to potential actions taken by Iran.
Geopolitics
Founded with the name Energy Security Analysis, Inc, ESAI has been a thoughtful commentator on energy security issues for 25 years. Building on founder Edward N. Krapels’ 1980 book, Oil Crisis Management: Strategic Stockpiling for International Security, ESAI has remained focused on geopolitical factors that shape energy markets and influence energy security decisions. In 1987, ESAI published SPRO-Watch, a Guide to Strategic Stock Drawdowns in the Persian Gulf Crisis of 1987. In early 1991, ESAI published The Crude Oil Market after the Iraq Crisis, which provided a detailed analysis of the longer term implications of the Gulf War. From 1990-1995, ESAI published a quarterly journal entitled Petroleum Politics, which analyzed any kind of political development which affected petroleum. ESAI remained engaged in the energy security debate, publishing Energy Security Revisited: New Approaches for a Global Petroleum Market in 1999. Since then ESAI has conducted proprietary studies on energy security policy for the U.S., Japanese and Indian governments. In 2003, ESAI published After Saddam: Stability in the Persian Gulf, and in 2006, ESAI President Sarah Emerson published When Should We Use Strategic Stocks? in the journal, Energy Policy. More broadly, ESAI’s analytical team covers a wide range of geographic expertise and provides monthly analyses of Russia, the Caspian countries, China and the countries of Latin America. From 2001 to present, ESAI has collaborated with faculty members at the US Naval War College to produce the biweekly Intelligence Briefing, which covers a wide range of geopolitical issues, but with particular focus on the Persian Gulf.
