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The Iranian saga

Published Tuesday, May 29th, 2012

The latest round of negotiations have broken down between Iran and the world powers. The next meeting is scheduled on June 18-19 in Moscow. It seems Iran is trying to buy time. Their motivation is unclear. They could be cleaning up the traces of uranium or could be finalizing nuclear bombs that could potentially be used against Israel.

As far as oil is concerned there are three possible outcomes of Iran’s nuclear ambitions.

1.) The country satisfies the demand of the international community and allows inspectors from the IAEA to visit their enrichment sites and prove that their intentions are peaceful. They will also be requested to send their highly refined uranium abroad and shut down an underground plant. In complying, a hefty geopolitical premium, worth probably around $10/bbl would be removed.

2.) Iran does not comply and the international oil embargo goes ahead from July 1. The country is reported to be exporting 300,000 bpd below their average volume already and the sanctions would see even less Iranian oil available in the market. The current $10/bbl geopolitical premium would increase by a few dollars.

3.) Iran does not comply and a.) attacks Israel, b.) Israel attacks Iran or c.) shuts down the Strait of Hormuz. This is the most unlikely but most bullish scenario. Should it happen, the highs of 2008 at $147/bbl will look cheap.

Posted by Tamas Varga

Tamas Varga has been in the oil industry since 1992 and with PVM for 18 years. During his time in the industry he has gathered a range of experience in the oil markets. At PVM Tamas is in charge of data collection and analysis.

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