Tags: Dougher | Hormuz | Suicidal | Iran

Energy Expert Dougher: Closing Strait of Hormuz ‘Suicidal’ for Iran

By    |   Wednesday, 22 February 2012 01:25 PM

Closing the Strait of Hormuz would be a death mission for Iran, as the world would intervene and free the waterway up almost instantly, says Rayola Dougher, a senior economic adviser for the American Petroleum Institute.

"I think it would be a suicidal move on their part," Dougher told Newsmax.TV in an exclusive interview.

"It's something that the world would not let stand. It's a very important chokepoint in delivering crude oil, and I think it would be really very harmful for Iran to make a move like that."

Iran recently cut off the oil supply to France and the United Kingdom to protest Western sanctions slapped on the country for its nuclear ambitions.

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Europe has voted to ban Iranian crude effective in July, but Iran is acting proactively.

Iran has also said it may close the Strait of Hormuz, a vital waterway connecting oil-rich Persian Gulf countries with the of the world.

Not only would closing the strait most likely spark a military response from the United States, it would also likely infuriate its Arab neighbors across the Gulf, thus further isolating itself.

Furthermore, fears are building that Israel might attack Iran unilaterally despite comments from U.S. military officials that Iran is, in reality, willing to act in a rational manner.

In the meantime, though, with Iran threatening supply and demand growing in improving U.S. and Asian economies, expect supplies to remain tight.

"When you have supply threatened and demand increasing, this really is a formula for higher prices," Dougher says.

Oil would have to break past $150 a barrel for gasoline prices to hit $5 for much of the country, which is possible, although $4 gasoline would likely serve as the tipping point before the economy balks, Dougher adds.

"I think crude is going to have to reach at least $150 or $160-$170 a barrel in order to see $5 a gallon gasoline," Dougher told Newsmax.TV.

Oil prices broke a record in 2008 when they surpassed $145 a barrel. Gasoline then hovered around $4.

This year, the United States is on edge as prices are high very early in the year — they normally don't rise until spring and summer when refineries use pricier feedstocks and when driving increases in the U.S.

"I think you would have to see prices a lot higher than where they are now, but $4 seems to be the magic tipping point for consumers," Dougher says.

"That's when they consume less. That's when they pull back. That's when they scream the loudest to their representatives and to Congress to do something."

Furthermore, Iran won't likely close off supply or if they did, it wouldn't be for long.

Meanwhile, the United States could become more energy dependent in 12 years if the country had a little help from Canada as well as the right policies in play, says Dougher.

The country needs to encourage more domestic drilling, boost supply from Canada and bring online existing technologies already in play like ethanol projects.

"When you look at the numbers, if we had a policy and if we said do we want to do this, we could do it in a dozen years," Dougher told Newsmax.TV.

"With opening up areas for access to development, partnering with Canada to get additional supplies from them plus the biofuels that are already going to come into the marketplace, we could within a dozen years bring that on."

Not only would the U.S. be able to wean itself off supply from the Middle East or places like Venezuela, but it could create jobs at home developing new energy sources.

"We could bring a million new jobs onto the market within a dozen years or less. We could grow the tax revenue. If you want taxes from the oil industry, this is a way to get a lot of money," she said,

"We know we have the resources, all we need is the political will to make it happen."

Political will seems to be the big hurdle to getting there.

The Obama administration's decision to halt the expansion of the Keystone Pipeline cut off access to crude supplies from an ally — Canada, which would have gladly pumped oil south to a thirsty U.S. market.

More drilling is needed also at home.

"What the president can do is look for ways to produce more domestically. What can we do at home? How can we bring more supply to the market? We have a lot of potential. We could open up areas offshore," Dougher says.

"He could approve the Keystone pipeline. That would bring Canadian supply to the world's market — as much as 830,000 barrels a day. That's half of what we currently import from the Persian Gulf."

Critics of the pipeline say a lot of the extra capacity coming online would end up elsewhere, as refiners in the U.S. would ship gasoline or diesel abroad.

That really doesn't matter, Dougher says.

The world relies on one global oil market and increased supply lowers prices for everyone.

"No matter what you do if you bring more supply of crude or petroleum products to the market, that puts downward pressure on prices. This is a positive thing for the American consumer and for all consumers because we are linked," Dougher says.

"More product means downward pressure on prices."

Furthermore, even if it takes a few years to expand Keystone, expectations of increased supply could pressure prices downward today.

Streamlined regulation would help as well.

While hydraulic fracturing, or fracking, is grabbing headlines these days, the technology is not new — it's been around since the 1940s.

What is new is the technology that allows engineers to combine hydraulic fracturing with horizontal drilling, which has some communities up in arms that their water supplies aren't safe as energy companies head out in search of new fuel sources.

Too many regulations aren't helping, either, especially at the federal level.

"The states have been effective at regulating this industry for many years, and they understand the hydrology and the geology of their own state and they have been very solid in terms of overseeing the rule and regulations for the Clear Air Act and the Clean Water Act," Dougher says.

"One size really does not fit all."

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