IRAN AND ITS OIL….Iran’s economy minister warned over the weekend that sanctions on Iran could “raise oil prices beyond levels the west expects.” Over at the Oil Drum, Stuart Staniford suggests that this is pretty much correct:
To give you the punchline up front, I’m going to argue that, with large (50%) uncertainties, a complete loss of Iranian production for an extended period might be expected to roughly double oil prices and cause massive economic impacts, while a halving of oil production due to sanctions, or retaliation to sanctions, might be expected to produce a 30-40% increase in price and significant economic impacts.
My uninformed gut opinion is that Stuart is actually being optimistic here. A shutdown of Iranian supplies in 1979 led to a doubling of world prices, but that’s only because Saudi Arabia made up for part of the loss. They can’t do that anymore.
In any case, read the whole thing if you’re interested in a historical perspective on oil embargoes and their impact on the global economy.