By Adam Currie — Exclusive to Oil Investing News
The threat that Israel will attack Iran's nuclear facilities has sent shudders through an already fragile crude market, and has raised fears that geopolitics could potentially wreak economic ha voc.
Israel has let it be known that it believes Iran's nuclear program is approaching a “ point of no return” beyond which it would be impossible to prevent it from developing nuclear weapons. Despite political analysts forecasting that US President Barack Obama will press Israeli Prime Minister Benjamin Netanyahu to defer action to allow time for sanctions to take effect, there has been a strong push in Israel for military action. Adding to political and financial market woes, and creating uncertainty regarding the stability of the world's richest oil region, is the news that Saudi Arabia has indicated that it will seek nuclear capability if Iran achieves it. In February, the European Union (EU) reached an agreement to sanction oil imports from Iran and freeze the assets of Iran's Central Bank within the EU. EU foreign policy chief Catherine Ashton commented that the sanctions are aimed at pressuring Iran to return to talks over its nuclear program. Rumors rock the market The investor community was dealt a harsh lesson on the volatility of crude prices as Iranian speculation, coupled with market rumors, resulted in an unanticipated surge in prices. Crude prices skyrocketed amid reports of Iranian sanctions, Middle East tensions, and unfounded rumors suggesting that a Saudi pipeline had halted a portion of Saudi oil exports. “The jump in price was prompted by an Iranian media report of an oil pipeline explosion in Saudi Arabia,” said Commerzbank analyst Carsten Fritsch. "Even if the original story came from Iran and no doubt was spread deliberately, the market clearly believes there to be an increased risk of supply shortfalls," he added. Despite finger pointing at Iranian news sources as the reason behind recent volatility, the situation has highlighted the market's inability to absorb supply shocks - even headlines about supply shocks - in a market hindered by limited spare capacity.