Iran Threatens – Crude Jumps

As things in Iraq have settled down since the troop surge, other areas have flared up. Israel, intent on protecting itself from Iranian threats of annihilation, has resumed saber-rattling. On June 20th, they conducted military exercises over the Mediterranean apparently in preparation for a possible strike on nuclear facilities in Iran. Iran promptly responded by warning of retaliatory strikes if Israeli aircraft attacked. General Mohammed Ali Jafari, commander of Iran’s Revolutionary Guards also threatened shutting down the Strait of Hormuz — through which 60% of the world’s exported oil moves. If you thought $140 oil was high, just wait until 3/5ths of available crude can’t get to market. That’s a scary scenario — not just for the economy, but for geopolitical stability.

Today, the U.S. weighed in on the situation. Navy spokesperson Lieutenant Nate Christensen assured the markets the U.S. would act if Iran blockaded the Strait. He scoffed at Iran’s optimism saying “They will not close it.” Maybe that’s why crude settled around $140, instead of climbing past $143 during intraday trading. Evidently the market trusts the 5th Fleet’s word on the matter. Time will tell who will blink first.

As for the markets, there’s strong reason to believe speculation isn’t the only thing driving up the energy markets. Here’s where politics and economics meet your empty wallet. Regardless of what happens this summer, one thing’s for certain: there’s never a dull moment in the Middle East.