This Commodity isn’t Headed Higher

Exactly 12 months ago, I sat down with my Publisher and colleague, Robert Williams, to discuss the global geopolitical situation with regards to the events in Iran.

At the time, the Iranians were making a lot of noise about their nuclear program. And issues in Egypt, Libya, Afghanistan and Iraq were reaching a boiling point.

Israel was calling for a military strike on Iran to disable the country’s uranium-enriching capabilities in order to stave off the production of weapons-grade uranium.

[ad#Google Adsense 336×280-IA]The U.S. Navy was increasing patrols in the Strait of Hormuz, the single most important choke point for crude oil in the world.

More than 18 million barrels of oil traverse the narrow channel between Oman and Iran each day.

Back then, pundits and analysts from major Wall Street trading houses, as well as a highly regarded oil insider in the publishing business, were calling for oil prices to jump as high as $200 per barrel if the Strait was closed down.

As we know, they were way off. Luckily, we didn’t make the same call…

My Trip Inside the Gates of Hell…

Closure of the Strait would, indeed, have sent prices higher – albeit not to $200.

We weren’t buying the story that Wall Street and pundits were selling. So I headed to the Strait of Hormuz to gauge sentiment on the ground.

Was it safe? Hell no!

But I was still able to get the real story.

I spent days in Dubai and then Oman talking to locals, people who usually wouldn’t share information with anyone stepping off the plane from the United States.

I talked to experts, as well. Including the entire energy security department of one of the G-7 countries. (It helped that the country’s Ambassador to the Emirates is a close friend of mine.) I spoke to smugglers from Iran who moored their massive dhows in Deira, the old port in Dubai.

Then I did what few Western civilians have ever done…

Posing As a Fisherman to Confirm My Hunch

I wanted to see what was going on in the Strait of Hormuz firsthand. So I went to one of Oman’s most secretive locations to find the smugglers who would take me there.

On an early November morning, dressed as a local fisherman, I boarded a speedboat and we launched into the water at the port of Khassab. Within an hour, we were in the Strait.

It was still dark, and the smugglers were still doing their business – ferrying goods back and forth from Iran to Oman.

At its narrowest point, between Khassab and the coast of Iran, the Strait measures less than 30 miles wide (which is the reason it can be choked off quite easily).

What I saw was business as usual…

Mega tankers were sailing through the shipping channels, with no military escorts. This confirmed what I was hearing from my sources on the ground in Dubai and Oman, and from my diplomatic sources in Abu Dhabi…

Oil was flowing freely and the “conflict” with Iran was more of a news story than a real story.

That’s what I reported back to you at the time. And that’s also when I made the call that oil prices were not going higher – and it would be a mistake to bet otherwise.

Earlier this spring, I made another trip back and concluded that Iran was in no danger of being attacked, and a political solution would be the most likely ending to this three-decade-long drama.

Now, just this past weekend, Iran and the West began the most serious negotiations in decades. And some sanctions, including the ones that prohibited global insurers from insuring Iranian tankers, have been lifted.

Oil prices aren’t headed higher. And if this agreement sticks, we could see oil in the $70-to-$80 range long before we see it at $200.

And “the chase” continues,

Karim Rahemtulla

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Source: Oil & Energy Daily