Why The Huge Spike in Oil Prices? "Peak Oil" or Wall Street Speculation?

Global Research

F. William Engdahl

Since around October last year,  the price of crude oil on world futures markets has exploded. Different people have different explanations. The most common one is the belief in financial markets that a war between either Israel and Iran or the USA and Iran or all three is imminent. Another camp argues that the price is rising unavoidably because the world has passed what they call “Peak Oil”—the point on an imaginary Gaussian Bell Curve (see graph on right) at which half of all world known oil reserves have been depleted and the remaining oil will decline in quantity at an accelerating pace with rising price. 

Both the war danger and peak oil explanations are off base. As in the astronomic price run-up in the Summer of 2008 when oil in futures markets briefly hit $147 a barrel, oil today is rising because of the speculative pressure on oil futures markets from hedge funds and major banks such as Citigroup, JP Morgan Chase and most notably, Goldman Sachs, the bank always present when there are big bucks to be won for little effort betting on a sure thing.  They’re getting a generous assist from the US Government agency entrusted with regulating financial derivatives, the Commodity Futures Trading Corporation (CFTC).

Since the beginning of October 2011, some six months ago, the price of Brent Crude Oil Futures on the ICE Futures exchange has risen from just below $100 a barrel to over $126 per barrel, a rise of more than 25%. Back in 2009 oil was $30. 

Yet demand for crude oil  worldwide is not rising, but rather is declining in the same period.  The International Energy Agency (IEA) reports that the world oil supply rose by 1.3 million barrels a day in the last three months of 2011 while world demand increased  by just over half that during that same time period.Gasoline usage is  down in the US by 8%, Europe by 22% and even in China. Recession across much of the European Union, a deepening recession/depression in the United States and slowdown in Japan have reduced global oil demand while new discoveries are coming online daily and countries like Iraq are increasing supply after years of war. A brief spike in China’s oil purchases  in January and February had to do with a decision last December to build their Strategic Petroleum Reserve and is expected to return to more normal import levels by the end of this month.

Why then the huge spike in oil prices? 

Playing with ‘paper oil’

A brief look at how today’s “paper oil” markets function is useful. Since Goldman Sachs bought J. Aron & Co., a savvy commodities trader in the 1980’s, trading in crude oil has gone from a domain of buyers and sellers of spot or physical oil to a market where unregulated speculation in oil futures, bets on a price of a given crude on a specific future date, usually in 30 or 60 or 90 days, and not actual supply-demand of physical oil determine daily oil prices. 

Currency Warfare: What are the Real Targets of the E.U. Oil Embargo against Iran?

Global Research
Mahdi Darius Nazemroaya

Against whom is the European Union’s so-called “oil embargo on Iran” really aimed at?

This is an important geo-strategic question. Aside from rejecting the new E.U. measures against Iran as counter-productive, Tehran has warned the member states of the European Union that the E.U. oil embargo against Iran will hurt them and their economies far more than Iran.

Tehran has thus warned the leaders of the E.U. countries that the new sanctions are foolish and against their national and bloc interests. But is this correct? At the end of the day, who will benefit from the chain of events that are being set into motion?

Are Oil Embargos against Iran New?

Oil embargos against Iran are not new. In 1951, the Iranian government of Prime Minister Mohammed Mossadegh with the support of the Iranian Parliament nationalized the Iranian oil industry. As a result of Dr. Mossadegh’s nationalization program, the British militarily blockaded the territorial waters and national ports of Iran with the British Royal Navy and prevented Iran from exporting its oil. They also militarily prevented Iranian trade. London also froze Iranian assets and started a campaign to isolate Iran with sanctions. The government of Dr. Mossadegh was democratic and could not be vilified easily domestically by the British, so they began to portray Mossadegh as a pawn of the Soviet Union who would turn Iran into a communist country together with his Marxist political allies.

The illegal British naval embargo was followed by regime change in Tehran via a 1953 Anglo-American engineered coup d’état. The 1953 coup transformed the Shah of Iran from a constitutional figure head to an absolute monarch and dictator, like the monarchs of Jordan, Saudi Arabia, Bahrain, and Qatar. Iran was transformed overnight from a democratic constitutional monarchy into a dictatorship.

Today, a militarily imposed oil embargo against Iran is not possible like it was in the early 1950s. Instead London and Washington use the language of righteousness and hide behind false pretexts about Iranian nuclear weapons. Like in the 1950s, the oil embargo against Iran is tied to regime change. Yet, there are also broader objectives that go beyond the boundaries of Iran tied to the Washington’s project to impose an oil embargo against the Iranians.

The European Union and Iranian Oil Sales

Iran’s largest customer for oil is the People’s Republic of China. According to the Paris-based International Energy Agency (IEA), which was created after the 1973 Arab Oil Embargo as the strategic wing of the Western Bloc’s Organization of Economic Co-operation and Development (OECD), Iran exports 543,000 oil barrels per day to China. Iran’s other large customers are India, Turkey, Japan, and South Korea. India imports 341,000 barrels per day from Iran, Turkey imports 370,000 barrels per day from Iran, Japan imports 251,000 barrels per day from Iran, and South Korea imports 239,000 barrels per day from Iran.

According to the Iranian Ministry of Petroleum the European Union only accounts for 18% of Iranian oil exports, which means less than one-fifth of Iranian oil sales. Only “collectively” is the European Union the second largest customer of Iran. All the E.U. countries together import 510,000 barrels per day from Iran. This collective rank that all Iranian oil importing E.U. countries have together is being highlighted by those that want to emphasize the effectiveness of the E.U. oil embargo against Iran.