Strait of Hormuz shutdown unlikely, won't last beyond 2 weeks

Singapore (Platts)--9Jan2012/702 am EST/1202 GMT

It would be "relatively easy" for Iran to shut down the Strait of Hormuz and disrupt some 15 million b/d of crude flows but such an event is unlikely and any blockade would not last beyond two weeks, due to a US-led military response, Societe Generale said in a research report released Friday.

"We believe it would be relatively easy for Iran to shut down the Strait of Hormuz. A credible threat from missiles, mines, or fast attack boats is all it would take for tanker insurers to stop coverage, which would halt tanker traffic," SocGen analysts said in the report.

But "we estimate the probability of this very high impact event at 5%," they said. Also, "we believe that Iran would not be able to keep the straits shut for longer than two weeks, due to a US-led military response," the analysts added.

"Although Iran may like the idea of retaliation in order to hurt its enemies, by halting its oil export revenues, it would hurt itself even more," the report said. "Moreover, Iran would do this at the cost of provoking a military response that could destroy much of its military and perhaps even its nuclear program."

However, should the vital waterway shut down, benchmark Brent crude prices could spike into a $150-200/barrel range, albeit for a limited time period, the SocGen analysts said.

Front-month ICE Brent futures were trading around $113.20/b in Asia Monday afternoon.

A disruption in the Strait of Hormuz would "definitely" result in a release of strategic oil stocks by the International Energy Agency member countries, the report said. At the same time, a severe price spike would sharply hurt economic and oil demand growth, and would thus be self-correcting, they added.

EU EMBARGO LOOKS LIKELY

Meanwhile, an EU embargo on some 600,000 b/d of Iran's medium and heavy sour crude imports looks likely, after the EU reached an agreement in principle on an embargo on January 4, the analysts said. A full ban could send Brent prices spiking to a $125-150/b range. The extent of the impact would depend on the terms of the EU embargo and how it is phased in, they added.

Iran would try to sell additional crude volumes to Asia, specially to China and India, but this is "easier said than done," the report said. Refiners in both countries have term contracts with Saudi Aramco and they would not be able to "simply tell the Saudis to reduce their exports."

Chinese and Indian refiners would have good negotiating leverage with Iran, which would have to cut its prices to Asian customers. Indeed, China might already be posturing for a negotiating position by taking significantly less Iranian crude in January and February, the analysts noted.

"Our 'guesstimate' is that Iran would only be able to sell a maximum of 200-300,000 b/d of the available EU 600,000 b/d to China, India, and maybe other countries."

Apart from the 600,000 b/d of EU imports, SocGen pegged another 200,000 b/d of Iranian exports to Turkey. Asia imports a combined 1.5 million b/d between China (600,000 b/d), India (400,000 b/d), Japan (300,000 b/d) and South Korea (200,000 b/d), it said. The report tallied another 100,000 b/d going into South Africa, making for a total of 2.4 million b/d.

Of Iran's total production of some 3.5 million b/d, 1.1 million b/d is processed in domestic refineries, SocGen estimates.

--Vandana Hari, vandana_hari@platts.com

http://www.platts.com/RSSFeedDetailedNews/RSSFeed/Oil/8774328

NEW YORK — Oil prices started the week lower after analysts said
that nations should have ample supplies regardless of Iran's threats to
block exports from the Persian Gulf.
Benchmark crude on Monday
fell by 84 cents to $100.72 per barrel in New York. Brent crude, which
is used to price foreign oil varieties that are imported by U.S.
refineries, fell 80 cents $112.26 per barrel in London.
Prices
climbed last week on fears that Iran could try to close the strategic
Strait of Hormuz in response to international sanctions. One-sixth of
the world's seaborne oil passes through the narrow strait, and traders
feared that a conflict in the region would slow down crude shipments out
of the Persian Gulf.
Read More:
http://www.daytondailynews.com/business/oil-prices-fall-as-concerns-about-iran-retreat-1309948.html

This has to be watched even more than what Iraq is doing at the moment!! This Strait being shut will have a substantial negative effect on this investment.

Good article full of real logic and believable numbers--thank you.

Let's get this RV done so that we can invest in the next plan....Iran Rial RV...I may need some more money in about 10 years.

doodoo wrote:Let's get this RV done so that we can invest in the next plan....Iran Rial RV...I may need some more money in about 10 years.

I think for the Rial RV I'll become a dealer. They've made more money than you can shake a stick at over the last 9 years.

@doodoo I'm with ya on that one for sure!!!

@maudaussie - you're welcome

There is enough firepower to make Iran a sea of glass without even considering all the other "support" ships in their armada... (destroyers, cruisers, submarines, etc., etc. on just one aircraft carrier...

I am not saying that Iran wouldn't be that STUPID to "try" flexing their testes... but I am here to tell ya... the US Navy will cut them off if they do try it...

:cheers: