Iran's Saber Rattling Lifts Oil

July 3, 2012 8:37 AM EDT
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The price of crude oil is moving higher today as Iran said on Tuesday it had successfully tested medium-range missiles capable of hitting Israel. Today's saber rattling comes after earlier threats by Iran failed to lift the price of oil. Previous attempts to lift oil prices include the introduction of a bill in Iran that would allow the country to try to stop oil tankers from shipping crude through the Strait of Hormuz to countries that support sanctions against it.

Preemptive military action by Iran to stop the oil embargo is extremely unlikely, as it would play into the hands of hardliners in Israeli and the U.S. who are just itching for a reason to launch an attack on Iran's nuclear facilities.

Iran's saber rattling serves three purposes. It bolsters the country's ego and strengthens its position as a regional power that is not afraid to stand up to America. Second, defiance strengthens Iran's bargaining position relative to nuclear talks. And third, fears over a military conflict increases oil prices, which considering decreased shipments as a result of the oil embargo, will be profitable to Iran's bottom line.

Iran is furious at Saudi Arabia for maintaining high production at the same time that sanctions go into effect. Plunging oil prices, combined with sanctions, are obviously putting the screws to Iran, and Iran is responding the only way the can - with empty threats.

The price of oil is moving higher today and is trading above Friday’s highs at $85 per barrel, but volumes are thin due to the holiday with many traders are on the sideline. The real test of crude will come later this week following the jobs number in the U.S.

In the meantime, United States Oil (NYSE: USO) is higher by 2.3 percent in early trading on Tuesday. WTI trades at $85.70 and Brent is trading at just under $100, at $99.75 per barrel.

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