Adam Boulton
The Only Way Is Up
March 26, 2007

OilpricestoriseAll eyes are on the price of oil.  Read today's story.

The trouble with Iran and its nuclear ambitions kept it high for much of last year.

But the seizure of the 15 British service personnel has begun another racheting process. Add to that falling output from OPEC, and forecasts of disruptive storms and hurricanes this year, and the only way for the oil price looks upwards.

The question is: How far? The U.S. Pentagon has warned that oil prices could reach $150 a barrel - more than twice today's level. Apart from the crippling effects on industry, that increase would flood onto your garage forecourt - and so on and so on.

The main alarm bells ring because Iran is the world's fourth largest oil producer, and it's warned that it will halt exports if it's attacked. Hence the excitement over the price. But we are a long way from a disastrous price explosion.

The market itself thinks there's only a 10% chance of military action - hence the oil price is about 10% higher than it was at the beginning of last week. Analysts also point out that President Mahmoud Ahmadinejad has been spending heavily on welfare and public service projects.

The Iranian economy is in a mess, and the country needs all the petrochemical revenues it can earn, with so few other commodities to export. Iran needs the West for its economic well-being. Whatever the extremist noises. That's a moderating thought.

Written by Sky News Business Team, March 26, 2007


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