Oil prices 'could surge' if Iran crisis worsens

Iran has ruled out cancelling the disputed presidential June 12 vote, as the international community voices increasing alarm at a violence crackdown on opposition demonstrators.

Iran currently produces about 3.8 billion barrels of crude oil per day and is the third largest producer after Russia and Saudi Arabia.

Analysts now fear the post election unrest could force the government to cut off oil supplies or block the Strait of Hormuz – a crucial passageway for oil tankers.

"There could be a rude awakening (for the oil market) if tensions in Iran escalate further," said VTB Capital analyst Andrey Kryuchenkov.
  
"Not only does the country pump a significant amount of OPEC crude, it also controls the Strait of Hormuz through which around 40 percent of global seaborne oil flows daily."

Oil prices have fallen heavily since the election, dampened by the dire global economic outlook and a stronger dollar.

New York's main futures contract, light sweet crude for delivery in August traded at about $US67 per barrel yesterday.

That compared with more than 72 dollars one week earlier.
  
"Although the markets are clearly not fazed by developments there thus far, we would not dismiss the likelihood that the (Iran) situation could come back to have a more forceful impact on oil prices -- particularly if the opposition manages to pull off a national strike that could potentially spread to the oil sector," said MF Global analyst Edward Meir.
  
"Needless to say, the odds arrayed against the opposition are daunting, as many of its leaders are jailed, while communications among the remaining are severely hampered and monitored.
  
"Nevertheless, the situation remains very fluid and anything is possible at this stage."

After Saudi Arabia, Iran is the second largest member of the 12-nation Organization of Petroleum Exporting Countries (OPEC), which accounts for 40 percent of all world crude supplies.
  
"There is no indication that (Iranian) oil production will be affected," said Francis Perrin, director of the journal Arab Oil and Gas.
  
He added that traders expected other OPEC member nations would compensate for any potential loss in Iranian oil output.
  
Analyst Nimit Khamar, at Sucden Financial Research, noted that there had not yet been any disruption.
  
"Post-election protests continue, but there does not appear to be any disruptions to oil supply yet.
  
"However, there is market talk that Iranians are trying to organise a national strike including the oil industry in reaction to the reappointment of Ahmadinejad."

OPEC's member countries have spare capacity of around six million barrels per day, according to a recent estimate from the Paris-based International Energy Agency.