The Price of Oil

BBC News - Ban Ki-moon condemns Sudanese air raid on South Sudan

via BBC News – Ban Ki-moon condemns Sudanese air raid on South Sudan.

The past few months have seen sporadic fighting in the oil-rich areas along the two countries’ undemarcated border, prompting concern the violence could escalate into a full-blown war.

When South Sudan voted for independence, they knew they would have a steady income – oil.  The problem lies in selling it, however.  Because the new country is landlocked, it relies on pipelines through Sudan to ports on the Red Sea.

In January, South Sudan decided to shut down oil production, which provides 98% of the government’s revenue, after Khartoum impounded South Sudanese oil shipments amid a dispute over transit fees.

The growing dispute has escalated into air raids and ground fighting in areas along the border.  If it is not resolved soon, a repeat of the 22 year long civil war is possible.

Meanwhile, South Sudan’s President Kiir has arrived in China for a six-day visit during which he will meet his Chinese counterpart, Hu Jintao.

China has traditionally been an ally of diplomatically-isolated Sudan, but observers say Chinese officials are likely to push for an end to hostilities between the two countries.

China is the major buyer of Sudanese oil, so they have a vested interest in solving the problem quickly.  Sudan takes almost a quarter of the South’s oil as payment for export fees.  Since the oil is the main source of government revenue in the desperately poor nation,  South Sudan is upset with what they call the “theft.”

How will this crisis be resolved?  What effect will the dispute have on oil prices?  How many more refugees will leave their homes due to the fighting?  And how will the South Sudan government pay for all the infrastructure they need if they can’t export their oil?

The following is from Human Rights Watch, via Nicholas Kristof

Iran Cuts own Throat, Stops Oil Exports to EU

via Iran ‘stops oil exports’ to UK and France – Middle East – Al Jazeera English.

Iran has stopped selling crude to British and French companies, the oil ministry has said, in a retaliatory measure against fresh EU sanctions on the Islamic state’s lifeblood, oil.

Most countries in the EU have stockpiles that will last them several months, until supplies from Saudi Arabia and others can catch up with the shortfall.  Hardest hit will be Greece, the debt-ridden nation.

Motor Oil Hellas of Greece was thought to have cut out Iranian crude altogether and compatriot Hellenic Petroleum along with Spain’s Cepsa and Repsol  were curbing imports from Iran.

Iran was supplying more than 700,000 barrels per day (bpd)  to the EU plus Turkey in 2011, industry sources said.

By the start of this year imports had sunk to about 650,000 bpd as some customers cut back in anticipation of an EU ban.

Will Saudi Arabia, Qatar, and other Middle Eastern oil-rich states be able to make up the short-fall?  How much will the price of oil rise?   How will the resulting increase in gasoline and foodstuff costs affect the worldwide economic crisis?

And in the United States, how will Newt Gingrich be able to provide $2.50/gallon gas, as he recently promised?  Doesn’t he realize that world markets are a little beyond his control?

Closing the Strait of Hormuz?

via Iran Threatens to Block Oil in Reply to Sanctions – NYTimes.com.

WASHINGTON — A senior Iranian official on Tuesday delivered a sharp threat in response to economic sanctions being readied by the United States, saying his country would retaliate against any crackdown by blocking all oil shipments through the Strait of Hormuz, a vital artery for transporting about one-fifth of the world’s oil supply.

Merely uttering the threat appeared to be part of an Iranian effort to demonstrate its ability to cause a spike in oil prices, thus slowing the United States economy, and to warn American trading partners that joining the new sanctions, which the Senate passed by a rare 100-0 vote, would come at a high cost.

The first sanctions against Iraq, in 2006, did nothing to slow their uranium enrichment program.  Although Iran claims the program is solely for peaceful purposes, Western nations are fearful of a ‘nuclear Iran.’  The new sanctions would hit India and China, as well as Europe, very hard, since they buy most of Iran’s oil.  Supposedly the slack could be picked up by Saudi Arabia, but many analysts don’t think that’s possible.  Undoubtedly the price of oil would rise.

Some economists question whether reducing Iran’s oil exports without moving the price of oil is feasible, even if the market is given signals about alternative supplies. Already, analysts at investment banks are warning of the possibility of rising gasoline prices in 2012, due to the new sanctions by the United States as well as complementary sanctions under consideration by the European Union.

Rising oil prices could set back the economic recovery, and cause more economic woes worldwide.  But an even worse outcome is possible – can Iran really block the Strait of Hormuz?  What will our response be if they try?

Chokepoints and Oil Transport

After our lesson last week on chokepoints, I read this post today on the World Geography Blog.  It got me to thinking about how much oil goes through these places, so I Googled and found this:

World Oil Transit Chokepoints Energy Data, Statistics and Analysis – Oil, Gas, Electricity, Coal.

Chokepoints are narrow channels along widely used global sea routes, some so narrow that restrictions are placed on the size of vessel that can navigate through them. They are a critical part of global energy security due to the high volume of oil traded through their narrow straits.

Because the Panama locks are so small not much oil passes through the canal, but some straits are not much wider.  This is the Bosporus, on the way from the Black Sea to the Mediterranean.

World Oil Transit Chokepoints Energy Data, Statistics and Analysis - Oil, Gas, Electricity, Coal

The article, from the US Energy Information Administration (whoever has heard of them?) covers all the oil chokepoints worldwide, and discusses the implications of their potential closure.

Energy Crunch Time

via Thirst for Energy Drives Beijing’s Global Push – WSJ.com.

WASHINGTON—China’s emergence as the world’s most voracious energy consumer has wide implications for U.S. foreign policy as Beijing moves to sew up energy sources from the Middle East to Latin America, and strives to take a lead in advanced energy technology.

China is now the largest importer of Saudi crude oil, outpacing the US.  They have signed contracts all over the world for coal, natural gas, uranium, and more.  At the same time they are working much faster on green technologies than the US.

Is this a competition?  If it is, where does that leave the US?

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