War Of Words
I feel like the cautious suitor playing the "will she or won't she" game. Only this game is being played in the international press by major powers. Will they bomb Iran or are the stakes too high. Actually are the stakes so high they can't afford not to bomb them?
The war of words started with Condoleezza Rice warning Iran that the U.S. will defend its allies aggressively if Iran struck back at any country friendly to America. She was talking about Israel but the statement covered any nation that eventually helps stop Iran's nuclear goals. That could be Saudi Arabia or any of the Persian Gulf nations that allow attacking planes over flight permission. It also covers any aggression against any ship transiting the Strait of Hormuz. It was a strong speech and was meant to put the fear of the unknown back onto Iran.
Not to be outdone Iran immediately test fired another batch of missiles as a warning that it could strike back against any country within 1250 miles of Iran and that includes quite a few U.S. allies. Iran said U.S. assets and allies would burn if any attack is carried out against Iran. What happened to that release of tensions from last weekend and the willingness to talk about the terms of the proposed deal? Evidently Iran needed the price of oil to go higher in order to unload all that crude they have stored on tankers. The best way to do that is with harsh rhetoric and Iran has always been good at that.
It was not just Iran inflaming the price of oil. The head of OPEC warned that oil prices would see an "unlimited" increase in the case of a military conflict involving Iran. The OPEC Secretary General said OPEC nations couldn't replace any production lost because OPEC's excess capacity was too slim. Iran produces about 4 million barrels per day. Since the Iran attack card has been in play for nearly two years now it appears OPEC wanted to take this opportunity to impress on U.S. consumers the price tag an attack would carry. With $4 gasoline now any disruption of Iranian oil or oil flowing through the Straits of Hormuz would send prices soaring much higher, possibly well over $5. There was also an implied threat that some gulf states could be pressured to side with Iran because of the Shia populations. Badri said any conflict with Iran would be long lasting in its impact and widespread in its destruction. That seems like he is warning the U.S. about Iran's threatened terror reprisals against U.S. and its allies around the world. That could literally extend for years. He then tried to assure consumers there was plenty of oil in the future saying OPEC nations were investing $160 billion to increase capacity by 2012.
French oil company Total SA (TOT) announced it was pulling out of Iran because conditions were too risky. Total becomes the last major oil company to leave Iran under pressure from the U.S and U.N. not to provide assistance to Iran unless their nuclear program was stopped.
In Nigeria the MEND rebels warned they would resume their attacks on oil facilities because of Britain's recent pledge to back the government in the recent conflict. The cease fire was in danger of breaking down after only two weeks. No surprise there.
The resumption of the competing attack and retaliation sound bites pushed oil to more than a $5 gain on Thursday to close at $142. Pretty amazing when you think the bears were gaining control just the day before with repeated tests of support. Analysts were quick to start raising price targets for the remainder of 2008 saying the floor just keeps getting higher on each news event. I am hearing the $200 discussed more and more often and odds are increasing it will become a self-fulfilling prophecy once $150 has broken.