IMF warned on harmful outcomes of halting Iranian oil exports

TEHRAN,Jan.28(MNA)--The IMF (International Monetary Fund) warned that global crude prices could rise as much as 30 percent if Iran halts oil exports as a result of U.S. and European Union sanctions. The International Monetary Fund said in its first public comment on a possible Iranian oil supply disruption, that the oil market impact of intensified concerns about an Iran-related oil supply shock (or an actual disruption) would be “large”. The report of “Global Economic Prospects and Policy Changes”, prepared by staff of the IMF for the Group of 20 advanced economies, said that if Iran halts exports to advanced countries it would likely trigger an "initial" oil price jump of 20 to 30 percent, or about $20 to $30 a barrel. The price impact caused by a cut in Iranian exports could be exacerbated by below average oil stocks in many countries, the result of tight oil market conditions through much of last year, the IMF said. Following is the text of IMF report: Concerns about geopolitical oil supply risks are again increasing. The likelihood of an Iran-related supply disruption remains difficult to determine, but recent price developments suggest that oil markets assign a rising probability. Concerns about large-scale, potentially unprecedented disruptions are based on the following considerations: 1- Iran is the world’s 5th largest producer, extracting 3½ million barrels a day (mbd), around 5 percent of global production and the 3rd largest exporter of crude oil. 2- Iran’s location at a key oil supply route (the Strait of Hormuz), where production capacity is concentrated and through which about 40 percent of global oil exports and one-fourth of global production is shipped. A blockade would also neutralize a large part of current OPEC spare capacity. Alternative routes exist, but only for a tiny fraction of the amounts shipped through the Strait, and they may take some time to operationalize while transportation costs would rise significantly. The oil market impact of intensified concerns about an Iran-related oil supply shock (or an actual disruption) would be large. Financial flow sanctions imposed by some OECD countries against Iran may be tantamount to an oil embargo and would imply supply declines of around 1.5 mbd, comparable with the average decline during major disruptions since the first oil shock and to the setbacks to Libyan production in 2011. A blockade of the Strait of Hormuz would constitute, and be perceived by markets to presage, sharply heightened global geopolitical tension involving a much larger and unprecedented disruption. A supply disruption would likely have a large effect on prices, not only reflecting relatively insensitive supply and demand in the short run but also the current state of oil market buffers. In particular, OECD inventory buffers are below average due to tight oil market conditions through much of 2011, and excluding Iran, spare capacity of OPEC producers is close to the average of the past decade, at about 3.8 mbd (5.2 percent of global crude oil production). A halt of Iran’s exports to OECD economies without offset from other sources would likely trigger an initial oil price increase of around 20-30 percent (about $20-30 a barrel currently). A Strait of Hormuz closure could trigger a much larger price spike, including by limiting offsetting supplies from other producers in the region