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Oil Market Activists Warn US to Avoid Aggressive Move against Iran

Source: Fars News Agency

Oil market activists, experts and consumers warned the US and Israel to drop their irrational warmongering rhetoric against Iran, saying that the first aggressive move on the Islamic Republic would cause an intolerable explosion in prices.

The rhetoric in Washington and Tel Aviv is rising, and clues show that the US and Israel have succeeded in their efforts to make the International Atomic Energy Agency (IAEA) Director-General, Yukya Amano, to express Washington and Tel Aviv's views in his next week report on Iran, actions that could inflame further the war of words.

While many experts in the market believe that a war on Iran would send oil prices soaring high between, at least, $200 and $300 for each barrel, the most optimistic analysis of the impact on oil markets of an Israeli attack on Iran and the subsequent closure of the Strait of Hormuz said oil prices could spike by as much as $175/bbl.

"Concern is rising among officials in Washington and Jerusalem that Israeli leaders increasingly favor unilateral military action to slow Iran's pursuit of a nuclear program," said Robert McNally, head of the Washington, DC-based Rapidan Group.

A spate of Israeli media reports on a possible strike have appeared this week, accompanied by veiled threats from top politicians.

In a speech to parliament this week, Israel's Prime Minister Benjamin Netanyahu said a nuclear-armed Iran would pose "a grave, direct threat on us."

Meanwhile, according to McNally, press in Jerusalem and Washington is starting to get wind of the possibility of an attack, and "reports may filter into the broader market consciousness, which remains complacent."

In an effort to determine the impact of such an attack on oil markets, Rapidan asked market participants what price response they would anticipate, taking into account current supply, demand, and stocks fundamentals.

According to McNally, a White House oil advisor in 2001-03, the new survey points to a price reaction somewhat stronger than a similar one undertaken last in December reflecting "tighter fundamentals" since then.

According to the survey's results, oil prices would rise on average by 23% in the first hours of the attack. However, some market participants anticipate a spike of close to $45/bbl.

Rapidan Group asked market participants about their price view 30 days after the attack, taking into consideration the magnitude of the supply disruption and the response of the International Energy Agency.

Participants said prices would increase by $11/bbl under Rapidan's short disruption scenario: Change in crude prices relative to prestrike levels after 30 days, assuming a short disruption only in Iran's oil exports lasting just a few days without any other interruption in supply.

Participants said prices could rise by $61/bbl under the prolonged disruption scenario where IEA stocks are used. The scenario includes price change 30 days after an Israeli strike, and assumes a 21-day disruption of oil traffic through the Strait of Hormuz before returning to normal throughput of 15.5 million b/d. IEA countries offset half the loss with around 8 million b/d.

Participants said prices could rise by $175/bbl under Rapidan's prolonged disruption scenario, where no IEA stocks are used. The scenario looks at price change 30 days after an Israeli strike, and it assumes a 21-day disruption of the Strait of Hormuz before returning to normal throughput of 15.5 million b/d.

The warnings by oil consumers and experts seem to have intimidated the US administration as after a month-long ballyhoo and media propaganda about Washington's decision for intensifying confrontation against Iran, the US officials eventually proved to be scared of a toughened stance on Iran, and withdrew plans for imposing sanctions on Iran's Central Bank earlier this week.

Despite weeks of tough warnings, the Obama administration has backed away from its calls to impose new and potentially crippling economic sanctions against Iran in retaliation for an alleged plot to kill Saudi Arabia's ambassador on US soil, fearing that such sanctions could disrupt oil markets and further damage the reeling US and world economies, according to diplomats and American officials.

The softening position illustrates the fragility of the US economy and the baseless nature of the US allegations and propaganda about Iran as no country accepts to ignore a threat it interests.

US officials and foreign diplomats added that the likelihood that other governments would strongly resist such a step also helped push the central bank measure from consideration and diplomatic discussion.

The pivot to more limited tactics has surprised some other governments that expected bold action after the administration warned that it would not tolerate Iranian terrorist plots on American soil. Some diplomats said it may be difficult for US officials to persuade other governments to scale back their business with Iran when the United States was being so reticent.

"The others are asking, 'Why should we take on the Iranians, when the US isn't doing so much?'" one diplomat said.

Federal officials three weeks ago alleged that an Iranian American car dealer in Texas sought to enlist a man he believed to be a Mexican drug dealer to assassinate Adel al-Jubeir, the Saudi ambassador to the United States.

US officials contend the plot was put in motion by the Quds Force, a special unit of Iran's Islamic Revolution Guards Corps (IRGC), and that they have evidence that money was transferred from Iran to pay for the assassination.

The administration's decision to back off the toughest sanctions comes at a moment when the US-led West alleges to be concerned about Iran's nuclear program.

Many governments, including Russia and China, have not shown cooperation with past international sanctions on Iran and view proposals to sanction the central bank as too bold and irrational.

Some US officials have pointed out in internal discussions that the step could risk the cooperation of a number of countries that have been less enthusiastic about past international sanctions, including some of the most important developing nations. Sanctions on the central bank would work far better if other nations agreed to take the same approach, but these other nations oppose the US policy on Iran, experts say.

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