One current issue of concern for the downstream petroleum industry and its motor and heating fuels customers is the possibility of an Israeli attack on Iran’s nuclear facilities and an Iranian response that could include attempting to close the 13-mile-wide Strait of Hormuz. Such an event would almost certainly have a dramatic impact on petroleum prices from crude to refined products at retail. NPN Magazine and Fuel Oil News had the opportunity to interview the host of FOX Business Network’s MONEY with Melissa Francis on the preparedness of the U.S. military to handle potential Iranian hostilities in the Strait of Hormuz. Francis has just completed a tour of the region as part of a broader look at the ramifications of such an event with a full hour-long segment Oil’s Dire Strait scheduled to run Friday, September 14th at 11pm CT.
NPN/FON: Is the military comfortable with its ability to either keep the Straits open or reopen them in a timely manner should a conflict arise?
Francis: We asked everyone on board the (aircraft carrier) U.S.S. Enterprise from the commanding officer and rear admiral all away down and they were 100 percent confident in their ability to respond and react if Iran did take the step to close down the straight, which is what they have threatened so many times. This is international water it's essential that stays open to commerce. It's not just about the 20 percent of the world's oil or the 17 million barrels a day that goes through the straight -- it's about all of the commerce. Food products -- everything they (the Gulf nations) need -- travels through this waterway and it has to stay open. They also felt to a person that it was essential for them to be there and to continue with the show of force saying we are here to make sure that stays open. And, I'm not sure there is anyone else that can really communicate that message as effectively.
NPN/FON: What were some of the scenarios discussed as to what they might expect from Iranian hostilities?
Francis: They didn't want to get too specific on that saying that it's hard to get inside the mind of the enemy, but of course they prepare for this all the time. We got a varying degree of answers as to how long it would take to reopen the straight or what it would look like but I believe it would be very difficult for them to keep it closed for any extended period of time. The strike group that we were with was so enormous. It was pretty incredible -- every hour-and-a-half they had strike missions going out providing cover for the forces in Afghanistan. It was a tremendous show of power and it was very impressive.
NPN/FON: Was there any feeling on the likelihood of an Israeli action?
Francis: There was a very different tone on the Enterprise versus off the Enterprise. On the enterprise they were very calm and business as usual. We asked them what it was like being out here given the rising tension and their response was you are the ones talking about the rising tension. We see that in the media but to us we are here conducting our mission and were going about our business every day. The flipside of that, is I also sat down with Sheikh Abdulaziz bin Mubarak Al Khalifa, the spokesman for Bahrain, and spoke with him about how important is it to have the fifth Fleet there. Of course, they are facing their own troubles internally as they struggle for democracy. (He) said the tension with Iran are rising and Iran is getting very close to having a nuclear weapon and that will completely destabilizing for the region and will be a huge threat. They need the Americans there and are happy to have them there.
NPN/FON: What have you come across as far as the potential economic impacts of Iranian action in the Strait?
Francis: Everybody has an opinion about that. The government General Accounting Office thinks that the price of oil would spike right away to $175 per barrel. I've covered energy so closely for a decade and you know that traders in the pits love to hop on news and bid the price up. I was talking to Fadel Gheit (managing director and senior analyst covering the oil & gas) at Oppenheimer & Co. and he thought that $175 was ridiculous and it would only have a temporary impact because we would open it back up.
I think without question we would see a big spike. I know that people have a difficult time predicting accurately where the price of oil is going but I think we would see quite a spike but I think would be relatively temporary and I think more than that it's Iran's nuclear capability, if we had confirmation for that ability, that would have a huge impact on the price because that is so destabilizing for the region.