One third of the world’s oil tankers (14 supertankers per day) pass through the Straits of Hormuz. The USS John C. Stennis also passed through the Strait of Hormuz in November. Next, the U.S. may send the USS Eisenhower to the region to give Iran an even stronger message that the U.S. intends to keep oil pipelines open. In response, Iran continues to issue threats to the U.S. Navy. Last Tuesday, Iranian Major General Salehi reportedly said that “Iran advises, recommends and warns [the U.S.] not to move its carrier back to the previous area in the Gulf.” This warning pushed oil up to an 8-month high of over $100 a barrel.
To ease these tensions, the U.S. Navy rescued 13 Iranian fishermen who were being held hostage by Somali pirates, returning those Iranians to their home country. This won some support in Iran for the U.S., but Iran’s hard-line Fars news agency called the rescue a “Hollywood-style propaganda stunt” to justify the U.S. Navy’s “blockade.”
On Tuesday, the European Union reached a preliminary agreement to ban Iranian crude oil, but it must secure new sources before the embargo can proceed. This dilemma could push Europe into recession by making energy scarce and pushing prices to prohibitive heights. The euro is already at a 15-month low to the U.S. dollar due to continuing financial concerns about the eurozone. On Friday, the European Central Bank had to step in to buy Italian and Spanish debt after 10-year Italian bond yields rose to 7.12% (i.e., 5.24% higher than the 1.88% Germany pays on its 10-year bonds). Italy now pays 4.94% on its two-year notes, 4.76% higher than equivalent German notes. Clearly, the euro crisis is not over. Read