Join Date: 05-10-08
Mentioned: 11 Post(s)
Hooray! for $8 gas... Wait, Wat?!?
If this should come to fruition, I will not be able to afford to go to work.
(USA TODAY) - Gas prices could double if Iran acts to close the Strait of Hormuz to oil-tanker traffic near the beginning of next year, cutting global economic growth by more than 25%, a leading energy-consulting firm said Wednesday.
Iran lacks the military might to close the strait for long, but it may be able to disrupt global oil supplies for up to three months by laying mines in the six-mile wide passage that the U.S. and its allies would have to find and remove, analysts at IHS Global Insight said on a conference call with reporters. About 17 million barrels of oil a day pass through the strait, or nearly 20% of the global market.
Crude oil prices could briefly hit $240 a barrel in the first quarter of 2013, said Sara Johnson, senior research director for Global Economics at IHS. Brent crude, the benchmark European oil which IHS uses a proxy for global prices, closed at $124.20 in London Wednesday. In the U.S., West Texas Intermediate, the benchmark U.S. crude oil, closed at $107.27 a barrel.
They would stay as high as $160 in the second quarter before reverting to somewhere around $120, she said. The firm forecast that such an oil shock could bring back gas lines in much of the world, and shave global economic growth next year to 2.6% from a current forecast of 3.6%,
"If it did hit $240, you're looking at about a doubling of where gas prices are now,'' said Jim Burkhard, managing director of the global oil group at IHS CERA, the firm's energy-research arn. "And the U.S. is at $4.''
Closing the strait probably wouldn't be in Iran's best interests, but the nation's leadership often fails to act in ways that Westerners consider rational, Farid Abolfathi, senior director of the IHS Risk Center, said on the call. The firm's analysis assumes the strait is closed at the beginning of 2013, as Iran reacts to U.S. pressure to stop development work on nuclear weapons.
Sheikh Sabah al-Ahmad al-Sabah, the ruler of Kuwait, said on state media Tuesday that Iran had assured its neighbor that it would not close the strait, despite its public threats to do so.
IHS' energy-related forecasts attract attention because of the reputation of Daniel Yergin, chairman of its IHS CERA division, formerly known as Cambridge Energy Research Associates. Yergin's books include the best-seller The Quest, about the evolution of energy markets since the end of the Cold War, and 1993's The Prize, a Pulitzer Prize-winning history of the oil industry.
The firm's outlook is gloomier than some economists' assumptions earlier. In an interview earlier this month, Moody's Analytics chief capital markets economist John Lonski said U.S. gasoline prices would reach $4.75 a gallon if Iran closed the strait.
The impact would be so large because global oil supplies are so tight, said Burkhard. The world has only between 1.8 million and 2.5 million barrels per day of unused production capacity, down from 6.2 million in 2009. Tight inventories magnify the impact of any interruption in crude from nations around the strait, he said. Much Iranian crude has already been taken off world markets because of international sanctions.
A doubling of gasoline prices could have a major impact on everything from consumers' budgets to long-term changes in the market for electric cars, the economists said. If consumers come to expect a sustained run of high gas prices, the closing of the strait could prove to be a "tipping point'' that drives acceptance of new technologies like electric cars, said Nigel Griffiths, chief economist at IHS Automotive.
"An electric vehicle is forever,'' he said.
Consumers could end up spending an extra $145 a month for gasoline, he said.
Some evidence suggests that consumers in the U.S. are already making adjustments. A new survey by AAA says 16% of consumers claim to have already bought or leased a more fuel-efficient car in response to rising gas prices, AAA regulatory affairs manager Avery Ash said.