Expect Brent crude oil prices to rise as sanctions on Iran start to bite

Expect Brent oil prices to rise as tensions over Iran and threats from the West to apply sanctions on Iranian oil will see prices facing more of an upside risk in the near future, according to commodities analysts.

EU Sanctions – Embargo

The EU are bringing forward a meeting which will determine when an embargo on Iranian crude will be enforced as an agreement in principle to ban imports of oil already exists.

China Off the Hook?

“Most of it has been priced in because the embargo news came out a week ago. Markets are jittery. We know if the EU imposes the embargo then Iran will probably send most of its crude to China.” Amrita Sen, commodities analyst at Barclays Capital, said.

Sen added that a crucial impact on oil prices would be if other countries outside of America and Europe joined in with an embargo of Iranian oil.

The threat to the supply of Iranian crude has risen dramatically in recent weeks, with a war of words erupting from the US and a threat by the EU that it will also be seeking to ban imports of Iranian oil.

“If the Strait of Hormuz is affected in any way we are looking at significantly higher oil prices. I wouldn’t even dare to put a price on it, but around $200 dollars a barrel.” Sen added.

Oil Prices Well Supported

Oil prices have been well supported in recent sessions on fears that Iran may make good on threats to cut off access to the Strait of Hormuz, a narrow passageway that connects the oil rich Persian Gulf nations with the rest of the world.

Meanwhile, Nigerian oil workers threatened on Wednesday to shut down output in Africa’s top crude producer, deepening a national strike over a more than doubling of petrol prices. Nigeria exports over 2 million barrels of crude oil per day and is a major supplier to the US and Europe.

Whilst Iran is the world’s fourth largest oil producer, pumping nearly 5 percent of the world’s oil in 2010. The threat of a major crude oil supply disruption from the country has helped support both WTI and Brent oil prices in recent weeks.

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Expect Brent crude oil prices to rise as sanctions on Iran start to bite