Israel’s training exercise worries oil markets

The US has now confirmed what oil traders have been suspecting – that Israel is preparing for a bombing raid on Iran’s alleged nuclear facilities. According to Bloomberg and the New York Times, around 100 Israeli aircraft took part in a full-scale training exercise in early June. The distance it involved, 900 miles, is apparently ‘about the same distance between Israel and Iran’s uranium enrichment plant at Natanz’.
Nobody knows whether the training exercise was the underlying reason for Saudi Arabia’s sudden decision to call for the Jeddah summit last weekend. But the timing appears more than coincidental. It might also have allowed a discreet meeting between Iranian and US negotiators to take place, had both sides wanted to talk to each other.

Bloomberg also reports that ‘a senior Iranian cleric, Ayatollah Ahmad Khatami, said yesterday his country would respond to an Israeli attack with a “heavy blow”.’ This is perhaps even more worrying, from a chemical company point of view, than talk of an Israeli raid itself. Oil traders have long feared that Iran might mine the Strait of Hormuz, through which pass 20% of the world’s oil exports.

Uncertainty on this scale creates the potential for major oil price volatility. Chemical companies are already faced with the problem of passing through major feedstock-related price increases during the seasonally quiet summer months. One can only hope that current problems will be resolved via diplomacy, and quickly.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. The aim of this blog is to share ideas about the influences that may shape the chemical industry over the next 12 – 18 months. It will try to look behind today’s headlines, to understand what may happen next in important issues such oil prices, economic growth and the environment. We may also have some fun, investigating a few of the more offbeat events that take place from time to time. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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