Sunday, June 08, 2008


A regular reader and astute market observer wrote the following:


one other reason Iran may be storing the thick, heavy crude in all those tankers in the Straights, is as a weapon. massive oil slick, and damaged tankers sealing off of the Straights in one move.

could they be remotely charged, ready to go off when the order comes down?

Iran has threatened to do just this in the past.

I send my thanks and the following response:

Iran is storing oil because it has no market for it. There are only a few refineries set up to handle this sulfur heavy oil. Those are "shut down for maintenance" according to Iranian officials but India just completed a huge new refinery that was built for the expressed purpose of refining heavy crude for export purposes. Iran did not expect to use any of the crude because the market price is higher than the price allowed in Iran. At the last minute, Saudi Arabia agreed to sell another 300,000 barrels per day to India to compensate them for the oil they had expected to get from Iran and Russia agreed to supply them with a certain amount of uranium for their under-fueled power plants.

Iran is in no position to start a conflict. US aircraft carriers have cruise missiles and fighter jets ready to take on any challenge. The US can withdraw 4 million gallons per day from its SPR and it has the support of other oil producing nations. It would not be fun but Iran would be under total blockade as soon as any battle starts. Saudi Arabia has built a pipeline across to the Red Sea. It has other pipelines that reach beyond the Straight of Hormuz. It would not be fun but the rest of the world could out last Iran if there is a blockade of oil.

Iran rattles just as a negotiating ploy. About 10 days ago, Iranian negotiators conceded a major point when they offered to get their enriched uranium from an international consortium, provided the UN supervised refining takes place in Iran. The latest hang-up is in regard to the agreement to allow US troops to stay in Iraq. The US wants a lot of flexibility but Maliki in negotiations with Iran today assured Iran that US troops will not be allowed to use Iraq as a base from which to attack Iran. Huge deal after huge deal has the potential of slipping away from Iran. Iran would very much like to complete the IPI pipeline but the one that has been funded is the TAPI pipeline. We are talking about access to trillions of cubic feet of natural gas. Another bypass being developed is a pipeline from the Caspian Sea to the Mediterranean Sea via Turkey. The shortest route is directly through Iran. The Iranians have proposed such a route but have no chance for as long as they are refining nuclear fuel.

Timing is always tricky but I am willing to bet that Iran will have suspended uranium refinement or have agreed to a package deal within 2 weeks of tomorrow. During WWII, even with Russia on the same side as the US and most of Western Europe, Germany was in a powerful position when it was close to taking over Russia and close to taking over England. Japan was a powerful ally and Italy was no cream puff. Iran can count on Cuba and Venezuela for support. Even Syria is close to a final agreement with Israel that will weaken its support for Iran.

This is the opportunity of a lifetime for an astute investor!