Oil prices could spike as high as $150 a barrel if Iran makes good on threats to close the Strait of Hormuz to conduct military exercises, says John Kilduff, Managing Director of Again Capital.
Iran has threatened to close the narrow Strait of Hormuz, which connects oil-rich Persian Gulf countries with the rest of the world, and hold military exercises.
While the West has largely dismissed the threats, pointing out that Iran can ill-afford to part with petrodollars, talk of shutting closing the waterway has sent oil prices skyrocketing on supply concerns.
Should Iran close the Strait of Hormuz to protest sanctions from the West for allegedly developing a nuclear program, expect U.S. oil to shoot up to as high as $150 a barrel from current levels of about $101 a barrel, Kilduff says.
"The screws for once really turning on Iran. I think the sanctions are finally biting and we have support now from Europe, and even the Chinese have cut their oil purchases from Iran by almost half. So everybody is really in line here to finally see if they can put Iran in a box," Kilduff tells CNBC
Iran does have the capacity to block the Strait, as the shipping parts of the waterway are only a couple of miles wide, which makes closure threats dangerous.
"Do you sink a barge or two — their own barges if anything else — and just hamper shipping? That be enough, in my view, to have the headline hit the tape and get the prices to skyrocket. I would put it around $140 to $150."
The U.S. has stepped up its insistence that it will act if Iran blocks off access to the waterway.
"We made very clear that the United States will not tolerate the blocking of the Straits of Hormuz," U.S. Defense Secretary Leon Panetta tells CBS television, according to Reuters.
"That's another red line for us and that we will respond to them."
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