Iran has garnered a great deal of attention lately.
Earlier this week, the Iranian military reportedly prepared practice
drills to seal off the Strait of Hormuz--a vital shipping lane in the
Persian Gulf."Soon we will hold a military maneuver on how to close the Strait of
Hormuz. If the world wants the region insecure, we will make the world
--Parvis Sarvari, Iranian Parliament and National Security Committee member.
The tense rhetoric sent NYMEX crude oil prices sharply higher—over $100 a barrel.
In fact, over the past several weeks, oil prices have been trading with
upward momentum. While many commodities have been weakening from a
slowdown in global growth and fear of an economic recession, oil prices
have remained relatively strong in the face of those headwinds.
But even with its recent strength, crude oil is not totally immune—evidenced by yesterday's 5% decline.
What separates crude oil from the rest of the commodity complex is its
sensitivity to geopolitical risk. And when the life blood that fuels
the world feels threatened, oil traders firmly fixate on one
When the supply disruption threat is strong enough, oil doesn't care
about a rising US dollar. Nor does it care if we're headed for an
NYMEX WTI Jan 2012 Crude Futures Contract (weekly)…
(Click to enlarge image)
Not only is Iran the third largest exporter of crude oil to world
markets, but its geographical location along the Persian Gulf makes it a
key focal point and potential threat to the disruption of supply.
Nearly 30% of all global seaborne oil exports, accounting for 17% of the
entire world's consumption, must sail the Persian Gulf and pass through
the narrow four-mile wide Strait of Hormuz.
It's now easy to see how a few statements from a mid-level politician
can roil the markets.