All You Need to Know About Iran, $200 Oil, and $6.00 Gas

If you're unsettled by the thought of gasoline at $4.00 a gallon, brace yourself.

With tensions between Iran and the West quickly escalating, we could see gas jump to $6.00 a gallon at the pump in a matter of months.

Make no mistake about it: If Iran were to follow through on its threats to close the Strait of Hormuz, oil prices would surge as high as $200 a barrel in matter of days.

But that's just the beginning…

A wider Iranian war could throw the entire region into chaos — making $100 oil seem like a bargain.

None of this is hyperbole. In fact, these dangers are likely according to of one of world's leading energy analysts, Dr. Kent Moors.

Dr. Moors is an advisor to six of the world's top 10 oil companies, including natural gas producers throughout Russia, the Caspian Basin, the Persian Gulf and North Africa. He also consults for high-level officials from the U.S., Russian, Kazakh, Bahamian, Iraqi and Kurdish governments on all things energy related.

In short, Kent's insights are invaluable.

That's why we've given Dr. Moors a chance to address all of the concerns swirling around the energy market today.

In the interview that follows you'll learn what you really need to know about Iran, the global oil market, and most importantly, what you can do to profit…

Dr. Kent Moors on the Brewing Crisis in the Gulf

Q) Dr. Moors, how serious are the recent developments in Iran?

Moors: This is the most serious U.S.-Iranian crisis since the fall of the Shah in 1979. There's a very dangerous situation inside Iran that is only being accentuated by the oil market problems that have resulted from Western sanctions.

First off, on the Strait of Hormuz: This is the most significant oil choke point in the world. Some 35% of the world's seaborne oil shipments and at least 18% of daily global crude shipments pass through this narrow channel in the Persian Gulf. And while the Iranian Revolutionary Guard Navy is not large enough to blockade the Strait of Hormuz for any length of time, it could disrupt traffic.

Q) What effect would closing the Straits of Hormuz have on oil and gas prices?

Moors: Closing the strait would result in a rise in crude oil prices of between $20 and $40 a barrel in a matter of hours. Any interruption beyond 72 hours would push prices to between $150 and $200 a barrel.

As far as gas prices are concerned, the basic rule of thumb is that each $1.00 rise in a barrel of oil results in a 3.2-cent rise in a gallon of gasoline. So $200 oil would equal $6.00-plus gasoline.

Q) Why is this crisis unfolding right now?

Moors: Three major elements are causing Iran to become belligerent:

  1. Massive economic and political problems inside the country.
  2. The last round of sanctions that restricted Tehran's access to international banking.
  3. And the European Union's (EU) decision to boycott Iranian crude imports.

I'll explain each of these further.

First, Iran is undergoing significant economic and political problems. The rial (the Iranian currency) has inflated almost 80% against the dollar in less than a year. The government has not accounted for almost $120 billion in oil proceeds kept out of the country, resulting in a split between Iranian President Mahmoud Ahmadinejad and some of his former supporters in the Majlis (parliament). Several of the president's closest advisors are, or shortly will be, under indictment for corruption. That includes a multi-billion dollar case of banking fraud, the largest in the country's history.

Ahmadinejad is in a flat out political war with both the supreme religious leader Ayatollah Khamenei and major clerics.

Now come the sanctions, which have gotten unbearably strict.

The last round of U.S., EU and United Nations (UN) sanctions began cutting Tehran off from international banking. Since global oil sales are denominated in dollars, access to exchange and clearing banks is essential.

Germany, under pressure from Washington, closed Europäish-Iranische Handelsbank (EIH). This small bank is Hamburg-based but Iranian-owned and registered by the Bundesbank (German Central Bank). American intelligence and Treasury officials are convinced (almost certainly correctly) that EIH had been a primary means through which Tehran accessed the international exchange, acquired equipment for its nuclear program, financed arms deals, and provided subsidies to Hezbollah and Hamas.

That was followed by the end of Asian Clearing Union (ACU) services for Iranian oil sales (despite Iran being one of the ACU members). That resulted in a full-blown crisis in India, where Iranian crude imports are essential. New Delhi had no mechanism to pay for the consignments until it set up a very inefficient system of rupee accounts in Turkish banks to exchange them for rials.

Iran must now resort to inefficient and costly substitutes – such as shadowy exchanges around the Dubai Exchange and barter arrangements (especially with China) via the Singapore Exchange. Since China has a trade surplus with Iran, it can effectively finance its crude purchases with its own exports.

Finally, the EU has decided to stop importing Iranian oil. Europe is the second-largest buyer of Iranian crude after China. Iran cannot find customers to replace such a large volume in short-order. The EU must be careful not to spike the price of crude through such a policy, especially for certain member countries already having problems of their own.

Greece, for example, usually receives a third of its crude oil directly or indirectly from Iran. Spain also would be immediately impacted. There's also a range of daily swap contracts in Europe involving Iranian oil as an element. These would also be thrown out of balance resulting in a price rise.

Risk is now an exacerbating concern in the oil market. The Iranian situation is rapidly becoming a major crisis.

Q) So what's the next move? How do you see this crisis playing out over the next several months?

Moors: The crisis will probably intensify. Western intelligence agencies have already concluded Iran will get nuclear weapons at the current rate of development. The attempt now is to destabilizeIran internally – hence the latest round of sanctions. Tehran will not allow this to happen. Threateningto close the Strait of Hormuz is one response;moves to destabilize the regionwill be another. Iran is a main sponsor of both Hezbollah and Hamas and neitherof these will sit idly by and have a financiallifeline cut.

Saudi Arabia will increase its own pressure against Iran, while any genuine attempt toclose the Strait will be met with an immediate Saudi response.

Q) Finally, how can investors profit? In the past, Money Morning has advocated exchange-traded funds such as the United States Oil Fund LP (NYSE: USO) and stocks as Suncor Energy (NYSE: SU) as ways to profit from higher oil prices. Are these stocks still good investments?

The longer the crisis remains, the greater the benefit from emphasizing North American-based production.

Companies – like the Calgary-based Suncor – that are active in Canada's oil sands are one way for investors to go. According to the government of Alberta, nearly 173 billion barrels of recoverable oil rest in these tar sands, based on current production costs. This represents nearly 75% of the total North American reserves currently available. Canada is the largest supplier of oil and gas to the United States, shipping approximately 75% of its exports here each month.

Kent discusses energy-related investment opportunities in depth in his ever-popular Energy Advantage newsletter.

You can learn more about his Energy Advantage newsletter and the coming oil supply constriction by clicking here.

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Join the conversation. Click here to jump to comments…

  1. allen | January 16, 2012

    why dose that make US OIL price go up, when have more OIL in the Bakken in North Dakota, how can they make our OIL go up here is it the Money Changer that headger the Market ?

  2. Jaap Schwarz | January 16, 2012

    Since Iran would cut in its own flesh by blocking the strait of Hormus , would it not be more likely that they try to gain control over Iraq by supporting the shiite movement over there. Last month the amount of heavy bombing give me the impression that stability is deteriorating pretty fast over there. Given the fact that the prime minister of Iraq is a shiite, who have one of his ministers (sunnite) arrested, a revolution is not unlikely in due time. The power of Iran would increase substantially in the region by a power shift in favor of the shiites in Iraq. The other arab states will be to weak due to the revolutions taking place in these countries to intervene effectively.

  3. Billy T | January 16, 2012

    Two questions:
    (1) During its recent naval exercises in and near the St. of Hormuz, did those ships drop many pieces of old hot water tanks, scrap iron, etc. to make bottom mine clearing a more of a problem?

    (2) has China or Russia provided complex trigger mines that require the pressure pulse of a large ship (i.e. an oil tanker) passing over the mine, in addition to magnetic and sonic signatures, which US mine clearing ships can simulate?

  4. Rich | January 16, 2012

    Isn't this just Hype? These criminals will not grand stand against the U.S. Navy

  5. Werner | January 16, 2012

    The outlook is not very rosy, far from it.
    However, American politics versus Iran are still largely influenced by the US' humiliation suffered at the time of the hostage crisis in the lat 1970ies. Europeans, in the wake of their Iranian oil dependency, appear to envisage deferring an oil embargo, thus taking a big edge off the efficiency of American sanctions. I do not approve of Iranian politics, but am also quite convinced that the US are sheerly unable to durably influence worldwide politics. The US have 3 lost wars on their books, Vietnam, Iraq and now Afghanistan. Weren't it for the Euro crisis, actively fanned by US politics and ratng agencies (who curiously did not see the real estate bubble coming…) thus enabling the country to buy time before the ultimate but inevitable demise of the Dollar, America had better stop meddling all over the world and start looking after its own population problems and whilst it is able to do so, look out to get its imported energy dependency removed. That would be the most favourable issue to come out of this crisis and avoid a war that would be fought mainly in Israel's interest. Of course, Israel deserves to survive. But the so-called threat of Iranian nukes may possibly turn out to be the same fluke as the Iraqui WMD. A bit less propaganda and more will to negotiate would bring us further than sanctions opposed by China and Russia.

    • R. Schulz | January 16, 2012

      The US has already become an oil exporter as of the end of 2011. This is in preparation for the nuclear attack on Iran, Syria and Pakistan planned for the near future. Russia and China can turn the US Empire into a little pile of dung by supplying Iran with nuclear weapons after
      the israeli/us nuclear attack just the way they supplied N. Vietnam with AA missles and 2,000 tanks.

      • David the king of zion | January 16, 2012

        Shalom from israel no country can destroy the usa&Israel those 2great nations are liable for ever and with help god thay will put down any enemy god bless America & Israel Amen

        • Eternity | January 17, 2012

          Who took the sword will perish by the sword. Make love people not wars!

    • Susan | January 21, 2012

      Werner,

      Thanks for a well written piece encapsulating the vital facts. Long story short, if America doesn't stop meddling in international politics for it's own gain, it may well find a hit from behind from an adversary too big to be beaten.

      I hope we don't see this…

  6. Jeff Pluim | January 16, 2012

    I believe that China will always oppose sanctions against Iran but at the same time, be happy that the rest of the world is supporting those sanctions. They are Iran's biggest customer for oil and the Chinese' need for oil far outweighs any other concerns, in their eyes. Expect a reciprocal currency agreement to develop between Iran and China, where China satisfies all or most of, their oil needs, and Iran no longer has to worry about a banking blockade by the USA. Since China has over
    $1 trillion in USD reserves, and they are trying to dump their USD reserves, in favour of other currencies, don't be surprised to see China provide banking services for the Iranians. Because a higher oil price would not serve the Chinese, I doubt that there will be any kind of conflict in the waters around Iran. The Chinese influence, merely by being such a good customer to Iran, will ensure that oil prices do not go up. I think that Kent Moors is way off the mark and that he is not looking at the big picture. The Chinese are far more effective with monetary diplomacy than the United States are with military diplomacy.

  7. mart | January 16, 2012

    I fail to understand why Iran is not allowed nuclear weapons yet Israel is (not to mention that Israel tried to supply South Africa with nukes which was then a nazi apartheid state)… from their perspective they are totally in their right.
    Furthermore there seems to be no real proof that Iran is in fact pursuing nuclear weapons but just nuclear energy alternative. Their oil is running out and they are projected to become a net oil importer in 5 years.
    It's yet another propaganda campaign like the one on Iraq's "wmds"

    • Robert Chapman | January 16, 2012

      Easy answer to your question about Iranian nukes. The complexity of international relations in a world with multiple nuclear powers increases exponentially. The consequences of a mistake in this complex system is globally catastrophic.
      We should not be asking why Iran cannot have nukes, instead we should be asking how the US, the PRC and the other nuclear powers can reduce their nuclear arsenals.

  8. Bernard Durey | January 16, 2012

    Well,it certainly doesn't surprise me that that is a highly possible and probable issue. I do not know if you are familiar with John Hague,I think the last name is spelt right but it may be wrong) and his book Countdown to Jerusalem. A very good book about the past several years and this administration that we would have a Democratic President. Which held true. In recent days I have talked with some people in relationship the the oil issues. One or two people say they have heard Mr. John Hague predict that we would be paying $10 a gallon before it is all said and done. I wonder if it ever really ends. Another issue that has come up with the tar sands crude oil in Alberta,Canada and they trying to combine it with the Light Sweeter Crude from the Bakken Formation is that the light sweeter crude would help push the tar sands crude through the pipes. I do not know if they plan on trying to hook the Bakken formation light sweet crude to the curretn Keystone pipeline that goes to the two refineries in Illinois(Wood River and Patoka) and also Cushing,Oklahoma. That has led to people wondering about the oil constriction and are those refineries clogged up. What would be the quality of the two combined crude oils one light sweet crude with the other tar sands crude? I mentioned before on another article about the recent January 2012 article from the Great Plains Examiner and Boom Town. The website for that is http://www.GreatPlainsExaminer.com and then Boom Town > A very good article and it does tell that they plan on hooking at Baker,Montana. It is located about 15 miles inside the North Dakota/Montana state line on Interstate 94. I do not know if they plan on running the pipeline down from the Bakkens in Williston area on the Montana side or the North Dakota side or perhaps both. I guess we will have to wait and see what happens. I wonder if it might touch off an oil blackmail at some point and time. Another very good book that was written back in the 1974,1976,1994 Armageddon,Oil and the Middle East Crisis by John F. Walvoord. Also it was stated previous that we get most of our imported crude from the North Sea. So how much does America actually import from the Middle East and also on this drill baby,drill baby drill thing I know it is to cut down our dependence on at first foreign oil then they changed to overseas foreign oil. Now the North Sea is about as overseas as one can get. Not quite the Middle East but then not to far away neither. Anyway thanks and hope we get some more answers,etc. have anice holiday and are you going to be in any symposiums with Canada on the Kyotol and Montreal Treaty problems?

  9. Bernard Durey | January 16, 2012

    Well,here we are again. The Mideast and oil prices,etc. They claim if it is shut down it will spike prices to the $160-$200 per barrel. There are some questions on some of that. Here in or on the continent there are issues of less dependecne foreing oil. That was switched to less dependence on overseas oil or overseas foreign oil. We then came into the dril baby,drill baby,drill thing and America did just that. Another question I think I saw somewhere that we get a lot of our overseas imported crude from The North Sea and some right nearby. I guess the North Sea is about as overseas as you can be next to the Middle East. The TransCanada issues are many. Some of which some think will balance out with the Boom Town,etc. There is a recent article on this in the Great Plains Examiner. If you go to http://www.Great Plains Examiner.com it brings the boom twon article up. There is still the issue(s) on mixing the two crude oils. The light sweet crude from the Bakken formation and the tar oil sands crude from Alberta,Canada. One person whom works in the oil fields or oil industry state side thought the light sweet crude oil would help push the tar oil sands crude through the pipes. What that does to refineries is probably not known yet. Also if it works that way will they hook on to the existing Keystone Pipeline which runs to refineries in Illinois(Wood River and Ptoka)? It also runs to Cushing,Oklahoma where we know there are some problems with the refineries competiton,etc. Is this tar oil sands crude clogging our refineries? Other related or unrelated topics is some authors have written books on this and related topics Armageddon,Oil and the Middle East Crisis 1974,1976,1994 by John F. Walvoord and Countdown to Jerusalem by John Hague. I am not sure I have his last name spelt right. The one auther even talks about the oilblackmail that could becoming. I thought a few years ago we were getting close with Russia,Venezuela.Iran,and maybeothers. We may still arrive there at some point and time in the future and may be the fuel for the drama of the next war or future wars. On the sideline of Canada's defection have you ben invited to the table for more takls about that isssue or issues and the Kyotol and Montreal treaties. You probalby have many symposiums coiming up geared around these topics. Thanks for your information and help,etc. Have anice day and a better tomorrow and hope it staves off the next wars for awhile.

    • Robert Chapman | January 16, 2012

      Dear Mr. Duerney, while you are correct about the volume of domestic US oil reserves being sufficient to meet domestic energy needs, you left the critical matter of price out of your calculations. The Persian Gulf states produce crude that is very pure and suitable for refining. Their oil deposist are also accessible and do not require a lot of expensive technology and labor to extract.

      The cost per barrell of US crude will cost multiples of the cost of Persian Gulf crude for the foreseeable future. We could depend on US crude, but the cost of such a dependency is prohibitive.

  10. Robert Chapman | January 16, 2012

    Dr. Moors conception is wrong. It is highly unlikely that Iran would close the Strait of Hormuz as that would destroy their diplomatic ccredility and likely precipitate a massive retaliatory attack on their naval and air force installations.

    It is vitally important the the US prepare to use the strategic oil reserve, consider pipeline routes from the gulf to the Medieranean and to the Red Sea and most of all that we keep our nerve and be steady and strong in staring down the Iranians and devising a diplomatic solution that serves the purpose of peace by eliminating the potential for an Iranian bomb, while allowing them the lattitude for domestic economic development.

  11. Frank | January 16, 2012

    It really is amazing how we are again being agitated by the same sabre rattling and angst indoctrination as in previous situations ….why must we insist on telling other Nations what to do & how to act … didn't we learn from so many other experiences around the world the more we meddle in other Nations way of living & doing business , the more problems we have created for ourselves…..look what happened in Afghanistan , Irac & Lybia ….these wars have solved nothing ..we spent tons of money to force feed our philosphie to these people , and what has been achieved really ???? Instead of spending billions of dollars to convince and alter some inherit & centuries of existence , we should be using this enormous amounts of money to correct our own problems , and work for the benefit of our economy which is in a deep hole , in fact sooo deep , that our grand childrens/children will be still paying off the greed of our unsatiable demands for personal gain . I we could only concentrate on the important things in life , such as health , a roof over our heads and a good education …..we could move mountains and achieve everything we dream about.

    This whole rediculous inuendo is a waste of our intelligence and our Government's should come to their senses by stopping to waste our hard earned money and support or indoctrinate other nations to live & behave as we do !! So what if the oil goes up to $ 200 a barrel …..we will never give up using our car's and maybe we all finally come to the conclusion that other nations have the same rights and opportunity to shape their existance for a more sustainable future !

    • Eternity | January 17, 2012

      Yes Frank, you are right. We know that very well from our experience. Greetings from Serbia.

  12. Carlos Paulino | January 16, 2012

    Dr. Moore always forgets that what goes up fast, crashes twice as hard when it goes down. Remember $150 a barrel? What happened when it crashed? $40 dollars a barrel! Then it all balances out.
    Iran is as big a bluffer as Saddam Hussein. Iran has the most to lose of any nation flirting with US power. A blockade would be a temporary cough. The Strait would be opened swiftly and Iran's military crushed. Along with it would be the end of Hezbollah, Hamas and alQaeda.
    If any nation can survive an oil shortage is the USA. Russia, China and emerging nations would be devasted. America is still the champ.

  13. Robert | January 16, 2012

    Dr Moor (or less) gets his talking points from the Wailing Wall Street Journal and the NYT, hardly a scholarly hang-out. Few want to look behind the curtain on the who and why of these serial wars in the middle-east. For now most reader's are busy looking to see how to get an edge on this new killing spree, so as to boost their bottom line. Who says Germans had a monopoly on stark evil? The people that control the international banking cartel and Wall Street made Hitler their poster boy in the 30's. They're back and their progeny is got you exactly where they want you…….on board.

  14. Daniel | January 16, 2012

    Dear Frank,

    You are absolutely right! Your comments is about the only one that make sense.

    The US is like a mad barking dog. Give it a mirror and let it bark at itself all it likes.

    As you have said, we have a lot of domestic problems that can't seem to be resolved. The Government has been elected by the people for the people – to see to their needs and not to meddle in other Nations' affairs. They are wasting the country's resources and achieved nothing. The taxpayers have a right to demand that their tax monies are put to good use, in the way that they decide, and not been squandered by those idiotic representatives. Throw them out and feed them to the dogs. They are contributing nothing good to the Nation.

  15. Bernard Durey | January 16, 2012

    I have read the whol article word for word. I guess I question whether they would attempt to close the Strait in question. However,while doing a study with some other people on another unrelated topic. I pondered the idea of Iran with missles,be they nuclear or other chemicals and be targetting places like the North Sea oil fields. Do we have our Navy in place in case such a threat exist? Are we meddling in other foreign countries affairs in our best interest? Could it perhaps be a U.S. Constitutional thing? That we as a nation will have a foreign interest somewhere. And of course there was the off shore issue here at home. Has it been 800,000 millionaires have moved off shore due to what issues? Energy or other reasons. When they take money off shore does it come back? I do not know what the figures are but someone had them several years ago for example: for every dollar that left the area the local area or state was loosing $7 or $8 . I do not know if that holds true today and I also know we have interstate commerce clause in the Constitution. Once again thanks and have a nice day.

    • Buz Davis | January 21, 2012

      You sound like someone who just started paying attention.

      Reading history can be fun! I suggest you try it.

  16. Robert | January 17, 2012

    Where is my post?……too close to the real truth of who is behind these bloody wars?

  17. Lorraine Powell | January 17, 2012

    It is time to face the fact that the more a nation has acquired as its necessities, the further it will fall when those so-called necessities are not there anymore or not there to the degree they once were.The U.S. is going to have a rude awakening soon. The higher something goes up, the farther it falls back down. Get ready for some very hard times Tianic America. The icebergs are all there now. We're just waiting to see which one(s) will be struck first.

  18. jrj90620 | January 21, 2012

    Dr Kent Moor has been predicting $5 gas in the U.S.,in the first quarter of 2012, for several months.I think he is looking for any reason,he can find,that will make that prediction come true.I doubt Iran is going to do anything that would cause oil to soar in price.More likely,we would need stronger economies to do that.

  19. richard the third | January 22, 2012

    all those "specialist's articles" about futures catastrophes like a shape to manipulate the opinion of little investors.

    greetings from argentina

  20. Jerry | January 22, 2012

    We are about to hit our next iceberg next Wednesday when we pay €1.5 billion to unsecured bond holders of a defunked bank
    Greetings from Ireland

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