Oil to skyrocket if Iran closes the vital route | business | Hindustan Times
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Oil to skyrocket if Iran closes the vital route

business Updated: Jan 05, 2012 22:47 IST
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If Iran were to follow through with its threat to blockade the Strait of Hormuz, a vital transit route for almost one-fifth of the oil traded globally, the impact would be immediate: energy analysts say the price of oil would start to soar and could rise 50% or more within days.

An Iranian blockade by means of mining, airstrikes or sabotage is logistically well within Tehran's military capabilities. But despite rising tensions with the West, including a tentative ban on European imports of Iranian oil announced on Wednesday, Iran is unlikely to take such hostile action, according to most political experts.

United States officials say the Navy's Fifth Fleet, based in nearby Bahrain, stands ready to defend the shipping route and, if necessary, retaliate militarily against Iran.

Iran's own shaky economy relies on exporting at least two million barrels of oil a day through the strait, which is the only sea route from the Persian Gulf and "the world's most important oil choke point," according to the US energy department analysts.

A blockade would also punish China, Iran's most important oil customer and a major recipient of Persian Gulf oil. China has invested heavily in Iranian oil fields and has opposed Western efforts to sanction Iran over its nuclear programme.

Despite such deterrents to armed confrontation, oil and foreign policy analysts say a miscalculation is possible that could cause an overreaction from one side or the other.

Various Iranian officials in recent weeks have said they would blockade the strait, if the US and Europe imposed a tight oil embargo on their country in an effort to thwart its development of nuclear weapons.

Analysts say even a partial blockage of the strait could raise the oil prices globally within days by $50 per barrel or more, and that would quickly push the price regular gasoline to well over $4 per gallon.

More than 85% of the oil that flows through the strait goes to China, Japan, India, South Korea and other Asian nations. But a blockade would have a ripple effect on global oil prices.