Today the EU ministers of foreign affairs approved the embargo on the export of crude oil from Iran. The embargo will be introduced step-by-step. First of all, the new contracts will be canceled right away while the old ones will be canceled in 6 months so that European importers could find new oil sources.
The situation around Iran started worsening in late 2011 after the International Atomic Energy Agency expressed concerns over Iran’s nuclear program without providing any proof.
In December 2011 the situation escalated after Iran warned that it could block Hormuz Strait if the West introduced oil sanctions against it.
At this point experts cannot estimate the chances of blocking Hormuz Strait, which will lead to a major conflict in the area.
Iran doesn’t export its oil to the USA, but the situation with European countries is different. The EU used to be one of the biggest consumers of the Iranian oil (20% of the country’s total oil export). That is a severe but not devastating blow to Iran because other consumers of its oil are not planning to stop importing oil from Iran. Only Japan (14% of Iran’s export) is ready to consider the option but only if there are alternative sources available. China (22%), India (13%), South Korea (10%) and Turkey (7%) are not going to join the EU.
Saudi Arabia is considered the main candidate to replace Iran. The authorities are ready to expand the production of oil by 2 M barrels a day. Libya’s oil infrastructure is being restored, thus becoming another option for the oil importers from Europe.
It should be noted, that only 3 EU countries – Spain , Italy and Greece - used to import oil from Iran. Other European economies seem to have no reason to be worried. However, according to , the embargo may result in higher oil prices around the world. In this case everyone will be affected.
The situation will deteriorate if Iran dares to block Hormuz Strait, which accounts for 30% of the global export of crude oil. In this case oil prices will rocket sky-high, $150-200/b or even higher.
According to the Department of Commodity Trading of , crude oil is currently testing the psychological level located at$100/b. A downtrend to $90-80/b is still probable. A rally will take place only if the price consolidates above $100/b.
