Black Gold Moves Higher as Iran Receives Blame for Oman Tanker Attack

The drums of war are once again beating loudly as another country finds itself directly in the cross-hairs of the United States government.

Fingers were pointing all around the room after Thursdays attack on two tankers near the Strait of Hormuz, a key transit and shipping route within the Gulf region.

The first tanker to report problems and send a distress signal was Front Altair, which, according to Bloomberg, was carrying 75,000 tons of naphtha, destined for Japan and departing from Abu Dhabi.

The second was a Japanese owned tanker, the Kokuka Courageous, which departed from Saudi Arabia and was heading to Singapore. Its cargo was methanol.

This of course caused the price of oil to surge higher on Thursday, with both WTI Crude Oil and Brent Crude making significant gains, the former moving higher by 2.41% and the latter by 2.42%.

Reports have been muddy and incredibly unclear to say the least, as we are still very much in the early days of this global incident and an official investigation has yet to begin. 

Even with that said, it is unlikely that we may ever learn what truly transpired, as no one has yet come forth to lay claim to this act of terrorism. Still, this has not stopped some from quickly pointing the finger and attempting to lay blame on others.

Tensions Soar, Fingers Are Pointed, Conspiracy Theories Abound

A U.S. defense official told CBS News on Thursday the following;

"It's highly likely Iran caused these attacks."

Quite a bold statement indeed, given the fact that no evidence has yet been brought forward that would make this claim have any validity, however, this does not mean that this statement is untrue, even if unlikely.

Iran is already under enough pressure from the United States government and its allies, as hostilities continue to escalate and sanctions against them continue to mount, resulting in severe damage to their economy.

In the United States governments own words;

"These are the toughest U.S. sanctions ever imposed on Iran, and will target critical sectors of Iran’s economy, such as the energy, shipping and shipbuilding, and financial sectors. The United States is engaged in a campaign of maximum financial pressure on the Iranian regime and intends to enforce aggressively these sanctions."

Performing such a brazen, foolish attack would only result in further punishment to Iran and would be of no benefit to them, as they are outgunned and outclassed by any metric of conventional warfare, when compared to the U.S. military.

The Express compared the military firepower of both the United States and Iran, which unfortunately for Iran, doesn't look so good;

Aircraft

USA: 13,398
Iran: 509

Ships

USA: 415
Iran: 398

Tanks and Armour

USA: 48,422
Iran: 3,979

Active Personnel

USA: 1,281,900
Iran: 523,000

Most Fearsome Aircraft:

IRAN: ‘Kowsar’ fighter aircraft - home built, based on 50-year-old US F-5 design.
USA: Lockheed Martin F-35 Lightning II - cost and capabilites mind-blowing.

Most Fearsome Tanks:

IRAN: Karrar - Iran claims among best in world, actually based on a 1970s Soviet T-72.
USA: M1A2 SEP - incredible technology and armour one of the most feared main battle tanks.

Most Fearsome Ships:

IRAN: IS Alvand - mid—class frigate with 60s technology.
USA: USS Gerald R. Ford - a floating city armed to the teeth, carrying 75 attack aircraft.

Despite the sabre-rattling from Iranian officials who have been attempting to defend themselves in negotiations with U.S. administration, they know they cannot win an outright war with the United States, they know the odds are not stacked in their favor.

Iran's Greatest Weapon, Location

However, what they do know, is the fact that I pointed out earlier and that is that they are strategically located on the North coast of the Strait of Hormuz, which is only 21 nautical miles (39 km) wide at its narrowest point and of which roughly 20% of the worlds oil supply flows through.

(Image source, Wikipedia)

Oil is often called black gold and for good reason, it is a vital commodity and is critical in keeping our modern day society running smoothly and efficiently. 

As you can see, Iran could cause significant and serious damage to world trade given their key, strategic location in the world and they know this. This IS their bargaining chip and they are going to let the world know it.

Understandably, both gold and silver, which are insurance policies against geopolitical and financial crisis responded accordingly and moved higher throughout the trading day as well, with gold ticking up by 0.71% and silver by 1.23%.

If tensions continue to mount and if Iran continues to be blamed for this act of terrorism, whether true or not, then you can expect commodities to continue their march higher.

How high will be decided by how far the powers to be wish to push this conflict, are they truly ready for the fallout that would come next and the financial uncertainty that would come along with it? 

Unlikely, but only time will tell. Stay tuned.

- As first seen on the Sprott Money Blog