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Sanctions against Iran could push oil prices close to $200 in 2012

The latest round of sanctions against Iran could well push world crude oil prices up as high as $200 a barrel in 2012, according to Iranian Oil Minister Rostam Qasemi as oil imports to America and the west dry up.

Latest Oil Prices

In London, Brent crude oil futures for February 2012 delivery was trading at $111.98 a barrel, 06.50 GMT this morning on the ICE Futures Exchange. The US Light WTI contract was up at $102.66 a barrel in electronic trading on the NYMEX.

Both oil contracts closed yesterday’s session over 4 percent higher, mainly on fears over supply out of the Middle East.

Oil Forecast 2012

In November, the IEA’s chief economist Fatih Birol repeated warnings of the clear need for more OPEC oil and every year forward to 2017. While the US EIA’s end year forecasts for oil prices in 2012 range through a more than generous $49 to $192 a barrel.

On December 30, Iranian Oil Minister Rostam Qasemi told Saturday’s edition of a news weekly, Aseman that world oil prices could soar to $200 per barrel if Iran’s petroleum sector is hit with new Western sanctions.

“There is no doubt that the price of oil will increase drastically and the international markets will have to pay a heavy price. One can’t give accurate predictions, but sanctions on Iran’s oil will drive up the price of oil to at least $200 dollars.” Qasemi was quoted as saying.

Twenty percent of the world’s oil moves through the Strait of Hormuz, at the entrance of the Gulf, making it the most important choke point globally, according to information released last Friday by the US EIA.

Iran Sanctions

Iran is subject to four rounds of UN sanctions over its nuclear programme, which many Western countries allege is being used to develop nuclear weapons.

Yesterday in Paris, France’s foreign minister said there is “no doubt” that Iran is moving toward a nuclear weapon and urged Europe to match America’s tighter sanctions set in motion last week.

Alain Juppe said the measures could include targeting Iran’s Central Bank and imposing an Iranian oil embargo.

On Monday, Iran test fired a surface to surface cruise missile during naval exercises near the Strait of Hormuz at the mouth of the Gulf.

Pricing In The Risk Factor

Olivier Jakob, managing director of oil consultancy Petromatrix in Switzerland, said that oil markets are now pricing in the potential risks in the Gulf.

“Iran is trying to send the message that you need to be very careful in passing the red line, and the rhetoric is increasing on both sides of the Strait.” he said.

Many analysts are downplaying the possibility of the Strait’s closure, but if a shut down did take place, global economies would be rocked, and recession would be almost inevitable across most of the west.

“If the entire Strait was to shut down, that’s 16 million barrels a day, basically one-third of all seaborne crude oil. A complete shutdown of the Hormuz for an extended period could easily send prices to $200 a barrel.” according to Francisco Blanch, head of global commodities at Bank of America.

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