Tags: iran | strait | hormuz | oil

Iran Threatens Strait of Hormuz, Oil Prices Spike

Tuesday, 13 Dec 2011 01:51 PM

TEHRAN - A member of the Iranian parliament's National Security Committee said that the military was set to practice its ability to close the Gulf to shipping at the narrow Strait of Hormuz, the most important oil transit channel in the world, but there was no official confirmation.

The legislator, Parviz Sarvari, told the student news agency ISNA: "Soon we will hold a military maneuver on how to close the Strait of Hormuz. If the world wants to make the region insecure, we will make the world insecure."

Contacted by Reuters, a spokesman for the Iranian military declined to comment.

Iran's energy minister told Al Jazeera television last month that Tehran could use oil as a political tool in the event of any future conflict over its nuclear program.

Tension over the program has increased since the International Atomic Energy Agency (IAEA) reported on November 8 that Tehran appears to have worked on designing a nuclear bomb and may still be pursuing research to that end. Iran strongly denies this and says it is developing nuclear energy for peaceful purposes.

Iran has warned it will respond to any attack by hitting Israel and U.S. interests in the Gulf and analysts say one way to retaliate would be to close the Strait of Hormuz.

About a third of all sea-borne shipped oil passed through the Strait in 2009, according to the U.S. Energy Information Administration (EIA), and U.S. warships patrol the area to ensure safe passage.

Most of the crude exported from Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq - together with nearly all the liquefied natural gas from lead exporter Qatar - must slip through a 4-mile wide shipping channel between Oman and Iran.

On the news, oil surged nearly $4 a barrel on Tuesday in a furious burst of trading that traders struggled to explain, citing renewed jitters over Iran's comments.

Brent and U.S. crude prices shot up quickly at 9:45 a.m. EST , briefly tacking $3 on to earlier gains as volumes surged in one of the most concentrated bursts of trading activity in months. Other commodity markets did not jump, and more than an hour later traders were still unable to pinpoint a specific trigger for the sudden rise.




Several traders pinned the move on rising tensions in OPEC member Iran a day after it made comments on shutting the Strait of Hormuz, the world's most important oil shipping route.

Market participants also cited talk the U.S. Federal Reserve could be mulling a third round of quantative easing, known in financial markets as QE3.

"I think it is moving up because of talk that (Fed Chairman) Bernanke is looking at a QE3 for next year," said Carl Larry, president of Oil Outlooks LLC, in New York. Other market participants said the move could have been tied to computer driven trading.

Adding to supply concerns, the Houston Ship Channel, an important oil transport waterway to the region's refining network, shut following a collision between a tanker and a cargo vessel.

Trading volumes eased after the brief surge, with Brent up $1.82 at $109.08 a barrel by 12:54 p.m. EST (1754 GMT), off a session high of $111.10 a barrel. U.S. crude gained $2.09 to trade at $99.86 a barrel, after reaching $101.25.

In early afternoon activity, U.S. crude trading volumes were about 19 percent below the 30-day average, while Brent volumes were about 16 percent below the average.

Markets were also watching comments by OPEC ministers gathering in Vienna ahead of Wednesday's meeting.

The group's leading oil price hawks on Tuesday sought a face-saving compromise on a new 30-million barrel-a-day production target for the cartel, near current output. The deal is designed to restore OPEC's credibility after talks fell apart in June and left it without its normal self-imposed output constraints.

OPEC, as well as the International Energy Agency, on Tuesday said high production levels by the producer group will help balance oil markets next year as demand growth slows.


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