Iran and the price of gas

Crude oil jumps following the capture of 15 British marines. What else could the standoff do to oil and gas prices?

By Steve Hargreaves, staff writer

NEW YORK ( -- Iran's capture of 15 British marines had an immediate impact on oil prices Friday, sending U.S. crude up over $62 a barrel for the first time in three weeks.

The question for motorists and those watching the energy market has now become: Will tensions escalate further, and how much higher could it send oil and gas prices?

One trader in New York said the markets had certainly reacted Friday, but not as much as he expected.

"[Traders] are talking about it, but the volume is kinda light, considering what's going on," said Jim Quinn, a NYMEX floor analyst for A.G. Edwards.

Quinn noted how oil prices had already gained some 9 percent this week, mostly due to a change of contract and falling gasoline inventories ahead of the peak summer driving season.

However, he said any escalation in the Gulf, even if shots aren't fired, could send prices higher still.

"If any type of rhetoric comes out with a little stronger talk, and if the soldiers aren't released, then the market is going to pay a little more attention," he said.

And consumers should pay attention too. Crude oil accounts for more than half of the price of gasoline.

One analyst in London said traders had gotten lackadaisical when it came to geopolitical concerns.

"The market was underestimating tensions with Iran to come back as a serious issue," said Kevin Norrish, a commodities analyst at Barclays. "And it's not just the nuclear issue, but Iran's involvement in Iraq."

The British Marines, boarding inflatable boats following a routine inspection of a merchant ship along the sea border between Iran and Iraq, were surrounded by Iranian naval vessels and taken captive Friday.

Iranian officials said the marines strayed into its territorial waters, a claim the British reject. The solders' location is unknown at this time, although they're believed to be unharmed.

Traders pay such close attention to Iran for two reasons: First, it's a huge oil producer, pumping about 3.5 million barrels a day according to the U.S. Energy Information Administration (EIA). With worldwide production at about 84 million barrels daily, Iran ranks as the world's fourth-largest producer.

And with an estimated 137 billion barrels, the country's oil reserves are second only to Saudi Arabia's 264 billion barrels, according to EIA. And it has the world's second-largest reserves of natural gas, behind Russia.

Second, the country sits astride the narrow Strait of Hormuz, through which pass a quarter of the world's oil.

Although experts believe Iran wouldn't disrupt shipping through the strait - by, say, blowing up a couple of oil tankers - the mere possibility keeps traders on edge.


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