The energy markets are constantly abuzz with activity around the globe. If you're an investor in this sector -- and you should be -- then staying abreast of every merger, discovery and seismic report is an exhaustive challenge. But in my Energy & Income
newsletter, I stay tuned in to the latest breaking news and emerging trends so you don't have to.
But if you've been paying any sort of attention at all, then there's one news item that's practically dominating energy news headlines.
On Dec. 12, a high-ranking Iranian official announced plans to conduct "a military maneuver on how to close the Strait of Hormuz," according to news reports.
The bold declaration undoubtedly sparked some serious discussions among U.S. State Department officials and their counterparts overseas. The Strait of Hormuz is arguably the world's most strategic and important shipping lane. According to the U.S. Department of Energy, about 15.5 million barrels of crude flow through it each day on giant tankers. That's about one-sixth of the world's total daily oil consumption, and one-third of all seaborne oil shipments.
Putting up a blockade would create untold supply disruptions and political havoc. Just the threat of this exercise was enough to rattle the oil markets and send prices climbing about $3 per barrel.
The last time I talked about Iran in Energy & Income, I warned that the international community was turning up the heat. Iran's President Mahmoud Ahmadinejad has responded to the tighter scrutiny by provoking the West.
Back in September, the Iranian navy announced plans to deploy warships out of the Persian Gulf and toward the U.S. maritime border in the Gulf of Mexico. This is probably just bluster -- I doubt Iran intends to engage the U.S. navy.
But blockading the Strait of Hormuz is a different matter. This is where most of the oil produced in Saudi Arabia, Kuwait and other OPEC countries passes through to the rest of the world. The narrow channel between Iran and Oman is just four miles wide in spots -- an easy choke-point where vital oil supplies could be bottled up in the Middle East.
It's not a coincidence that Tehran's latest threat comes shortly after the capture of a downed American spy drone. And as tensions escalate, Iran may indeed take steps to hold oil shipments hostage, despite the presence of U.S. patrols in the region.