Tags: Schork | Mideast | War | Depression | iran | oil

Schork: Mideast War Would Spark US Depression

Wednesday, 28 Dec 2011 07:09 AM

By Forrest Jones and Kathleen Walter

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Mideast saber rattling surrounding the Strait of Hormuz will unlikely escalate into a full-scale military conflict, but should that happen, the United States and the rest of the world will fall into a crippling depression, says commodities research analyst and trader Stephen Schork.

Iran has threatened to block access to the Strait of Hormuz, a narrow passageway connecting oil-rich Persian Gulf countries with the rest of the world if the West makes good on threats to sanction Tehran for allegedly pursuing a nuclear program.

Fears that the conflict could escalate into regional military conflict involving Israel are growing as well.

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Such a scenario would be devastating, in that Arab countries would wage war against Iran because they, too, would be unable to get their oil out.

"Should the Iranians try and close the strait, you'll see war between Arabia and Persia at that point. In a worst-case scenario, there really is no limit on how high oil prices would go and therefore how high consumers would be paying at the pump," Schork told Newsmax.TV in an exclusive interview.

"It will make the last economic contraction of 2008 look like the good times, because we would be heading into a serious global depression in any sort of regional conflict between Israel and Iran or between any of the Arab countries and Iran."

Absent war in the Middle East, oil prices should hover around $90 to $100 a barrel next year, Schork says. Currently, oil is trading around $101 a barrel.

Tensions in the Middle East will continue even if war doesn't break out, and the U.S. economy is recovering and will need more oil and oil products to grow.

Plus as the winter ends in the coming months, refiners will switch over to blending summer-grade gasoline products, which are more expensive.

"Based on a normal supply and a normal demand relationship, we cannot go any higher, I believe, than $120 a barrel."

Armed conflict, however, changes everything.

"The risk that we run is, for instance, with Iran. Any sort of disruption to supply all bets are off and we can go as high as the market wants to push it. The sky is the limit at that point. But that is really a unique situation."

War is not likely because Iran can ill afford to close access to the Strait of Hormuz, Schork points out.

Iran needs the petrodollars to finance its government. Closing down access to the Strait of Hormuz also closes the flow of money going back into the country.

Furthermore, while Iran may be a large producer of crude, it produces very little refined oil products, such as gasoline.

"So what the country actually has to do is sell their oil and then buy it back in the form of petroleum products. Iran needs the dollars and the petroleum products," Schork says

"It is extremely unlikely that we will see any sort of disruption in the Strait of Hormuz."

The Obama administration has been hesitant to drill for more oil at home, which is something it should consider doing, Schork says.

"Every barrel that we can produce domestically is one less barrel that we have to import," he points out.

Drilling at home would curb dependence on foreign oil, which comes with hostilities not just from the Middle East but closer to home as well.

"Venezuela is our third-largest supplier of crude oil and the government in Caracas is absolutely belligerent to the White House, be it a Republican or a Democratic White House. It does not matter."

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