Iran, Lebanon and oil

Over the last few days, oil prices have undergone significant fluctuations despite their general trend of decreasing. After a barrel of West Texas oil registered at a record price of $78.40 on 14 July following Israel's attack on Lebanon, the price again decreased to less than $60 at the beginning of last week. This is the largest and fastest decrease in price recorded in more than 15 years.

Prices now are at the lowest level they have been at for nearly six months. Thus, despite fluctuations, the general price trend is to decrease, a direction I believe will continue for some time, all other things being equal. The reason is that true global supply has for some time been higher than demand in oil-consuming states, with evidence provided by the significant increase realised in the stores of primary oil-consuming states, the United States, Western European countries, China and Japan.

The fact is that what has pulled prices up in recent years has been a number of geopolitical factors that coincided with a time of tension in the global market due to the lack of a productive energy surplus in primary oil-producing states.

At the head of these geopolitical factors was the security and political crisis in some oil-producing and exporting states, such as Iraq and Nigeria. The lack of security and stability in Iraq has led to a decrease in the scope of production and export to the extent that three and a half years after American forces invaded the country, levels of production remain less than prior to the invasion. This is true even though at the time the country was under international sanctions and was exporting oil under the Oil for Food Programme directly supervised by the UN.

Although the reasons behind Nigeria's case differ, the similarity with Iraq is great. It is estimated that the country lost approximately 800,000 barrels from its daily production due to the attacks of rebels in the Niger River delta on oil installations and their workers.

In addition to all this, the dispute between the West and Iran over Tehran's nuclear programme increased anxiety in global markets. This anxiety was not only related to the likelihood of the global energy market losing Iranian exports if US military strikes were authorised or sanctions imposed. The fear was that Iran would close the Hormuz Strait, through which more than 17 million barrels of oil pass daily. This would place the world in an extremely difficult situation, and, if implemented, would take prices to levels unprecedented since the discovery of oil. The truth is that Iran did not leave much room for analysis and interpretation on this front, for in addition to openly threatening the possibility of closing the strait, a number of land and naval manoeuvres conducted in April clearly indicated readiness to act with force.

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http://weekly.ahram.org.eg/2006/815/op1.htm