Oil Prices Could Soar 80% If Iran Shut Hormuz: Analyst

By: John Melloy, CNBC.com

If Iran were to shut down the Strait of Hormuz, a key oil transportation route where millions of barrels travel out of the Persian Gulf every day, Brent crude [LCOCV1 112.27 --- UNCH] would surge to between $150 and $200 a barrel, according to an oil analyst with Societe Generale.“We believe it would be relatively easy for Iran to shut down the Straits of Hormuz,” wrote Michael Wittner, in a report late Friday to clients. “A credible threat from missiles, mines, or fast attack boats is all it would take for tanker insurers to stop coverage, which would halt tanker traffic. However, we believe that Iran would not be able to keep the Straits shut for longer than two weeks, due to a US-led military response.”

However, the analyst puts this aggressive action as a low probability event. The more likely scenario is an embargo imposed by the European Union, accompanied by U.S. pressure on other countries to do the same, which could still send Brent prices to the $125 to $150 range. Brent was trading above $112 a barrel on Monday.

“An EU embargo is considered likely, especially after the EU reached an agreement in principle on an embargo on January 4th,” wrote the analyst. “When it is announced, depending on the timing and details, we may revise our base case oil price forecast upward.”

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