If situation goes really wrong, we can see Iran, third largest oil exporter to Saudi Arabia and Russia, can play spoil sport in the oil markets. Along with exporting 2.6m barrels a day to countries like China Japan and India, Iran also holds a grip on Strait of Hormuz, the gateway to middle east oil. The strait is important as 15.5m b/d of oil passes through each day, equivalent to third of seaborne traded oil. This adds significance because the world’s spare production, the first line of defence against supply disruptions, is in Saudi Arabia, UAE and Kuwait.
There is heavy speculation that Iran’s nuclear programme is set to conflict with Israel and that this situation will drive a price war in oil markets. In such a hypothetical situation, we can see the price of Brent Crude to reach an all time high of $200 a barrel.
Currently the European inventories are already slumped due to series of supply side factors. Loss of Libyan supplies, coupled with North Sea outages, pipelines sabotages in Nigeria are some of the problems related to production factors. With so much disruption, one can do away with the risk in Tehran.
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