Businessinsider.com: The enemy of the conventional wisdom is not ideas but the march of events. – John Kenneth Galbraith
The western embargo against Iran’s oil seems to be running into a buzz saw. The success of any embargo will be conditioned on two variables: 1) whether Saudi Arabia can quickly ramp up production to meet European demand, and 2) whether China and Japan will cooperate. Now, after a two-week delay, Iran is making its own chess move by cutting off supplies to French and British oil companies. With a full European embargo now in effect, the final blow will be delivered by Iran itself. AP reports that Asia has given Europe and the U.S. a “polite” bush off, with China going so far as to increase Iranian imports.
It should be pointed out that when Libya shut down production, the Saudis took it as an opportunity to game the market and little else. Forcing higher production also comes with costs, namely it harms the oil fields. Added production would also involve heavy crude, which the market doesn’t really want. Furthermore, Saudi production is already near full capacity. Finally, shipping 0.6 Mb/d more per day to Europe will involve passage through the Strait of Hormuz, and that would be a direct affront to Iran and something Saudi Arabia might wish to avoid. One of the many under-reported stories in the West is that the Saudis have already made special arrangements to send 100% of their contracted oil to Japan and China. So it appears that the argument that Saudi Arabia will simply ramp up output to meet European demand is nothing more than cheap talk by spin doctors.