[AltoLXI]

Post US sanctions on Iran and its warning to other countries not to have any transactions with Iran, dire predictions are being made where oil prices may reach 250$ / barrel. India being the second largest buyer of oil from Iran, will face the dilemma of whether or not to antagonise U.S and go ahead with its trade with Iran.

Earlier this week, most oil market watchers were startled when they came across reports that suggested oil prices could shoot to $250 a barrel. The prediction was made by Artem Avinov, leading analyst with TeleTrade, who was quick to add that it was a possibility and not a probability. But there are other scary forecasts doing the rounds.

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Artem Avinov, leading analyst with TeleTrade, also predicts that oil prices could jump to $250 per barrel if the Strait of Hormuz is blocked by Iran. But he also notes that such a scenario is highly improbable. “I am skeptical about the possibility of the Islamic Revolutionary Guard Corps to cut off oil supplies through the Strait of Hormuz for several days or weeks. Even if Iran really acts, we are likely to see a quick economic or military retaliation, which will lead to the lifting of restrictions,”

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Meanwhile SBI has already stopped handling Iran oil payments and resulting in hit on imports.

India’s imports of Iranian oil may be hit from the end of August after the State Bank of India informed refiners it would not handle payments for the crude from November, the finance chief of Indian Oil Corp (IOC) said.

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[SmartCat]

As the article itself suggests, Iran shutting down Strait of Hormuz because of oil sanctions is a low probability event. But if it does, yeah, Oil could hit $XXX per barrel because a significant percentage of Gulf's crude oil exports passes through the Strait of Hormuz.



Iran can achieve closure of Strait of Hormuz in two ways:

1) Deploying sea mines (will take a long time to clear)

2) Using a swarm of boats to attack crude oil tankers (basically guerrilla tactics). Iran literally has thousands of small attack boats like these -



Since strait of hormuz is just 40 km wide at some places, it is almost impossible for American Navy to defend the crude oil tankers.

However, there is a reason why Iran is unlikely to take such an extreme step because of oil sanctions - because the threat & ability to enforce Stait's closure is an insurance policy against American or Israeli attack on Iranian nuclear or military facilities. Ever wonder why Israel or United States has never attacked Iran? Ever wonder why Iran messes around in Syria, Yemen etc with impunity? Because, they sort of know that they have this Brahmastra in their arsenal.

That's why closure of Strait of Hormuz because of oil sanctions (and hence oil touching $250 a barrel) is a low probability event. They will try to close the Strait of Hormuz only if they are attacked.