With the introduction of sanctions against Iran as well as a reduction in the development in new oil infrastructure, the chances for the highest oil prices in a decade is growing by the day.
Some say that the market is underestimating the potential fallout when the sanctions go into effect as they will cut off a large majority of the income the Iranian economy depends on which is namely oil.
The US, which is the driving force behind the sanctions may have to use a naval blockade to enforce them that is bound to provoke a response from Iran which may include the use of military force.
Such a scenario would see the oil price soar.
“In case there is ‘a military accident’ in the Arabian Gulf, the oil supply route could be seriously disrupted,” says Athens based shipping expert Theo Matsopoulos
“It is not necessary for the Strait of Hormuz to be fully blocked, as happened in the Suez Canal in 1956. The expectation of a blockade and the potential for disruption could cause turbulence and shape a bullish market for crude oil.” He added.
Another factor expected to boost oil prices is the lack of investment made by the major companies in oil infrastructure, which analysts say, will only add to the shortfall of oil and could help create prices that exceed the level of almost $150 a barrel reached in 2008.
Exxon Mobil and BP are reportedly the only big companies currently expanding into new production.
“The risk for the oil industry in reducing investment today, is creating a shortfall in oil supply tomorrow. Oil remains an essential part of our lives. At some point the proverbial 'chickens will come home to roost .The impact will be production declines and another super-cycle in oil prices," noted analysts from Bernstein research
"Any shortfall in supply will result in a super-spike in prices, potentially much larger than the US$150 spike witnessed in 2008." They added.
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