Will Iran’s turmoil bring higher oil prices?

Probably not — they’ll still have to sell crude.  I’m staying long China’s PTR & Brazil’s PBR

A lot of people must be wondering if there’s an oil story behind Iran’s unrest.  Will it lead to another bump in oil that will drive up American gasoline prices?  Perhaps, but I suspect the answer is no.  History suggests Iran will continue to export crude regardless of the outcome.  That’s because Iran needs foreign exchange far more than the world needs its oil.  Ahmadinejad and the mullahs cannot afford a dollar shortage right now – almost guaranteeing their oil will keep flowing.  There may be near-term spikes if violence shuts down Iran’s ports.  However, it’s not likely to have a long-term impact since other OPEC countries will readily accelerate oil exports.

Even if Iran imposes an embargo on oil sales to the U.S., it won’t have that much impact because the bulk of foreign oil that reaches the U.S. comes through Canada.  Historically, embargoes have never been all that effective.  In World War I, England blockaded Germany making it harder for U.S. exporters to sell to Germans.  U.S. companies just expanded exports to Sweden and Scandinavia who then imported U.S. products to Germany.  During the Arab oil embargo in the 1970’s, the U.S. imported as much oil as before the embargo.  If every OPEC member placed a ban on sales to the U.S., America would still buy oil from markets OPEC had not embargoed.  As Wall St. Journal’s Robert Bartley suggests, the oil spikes in the early and late ‘70s was because the dollar was in freefall, and oil is priced in dollars.  Oil didn’t really become high priced in the ‘70s as much as the dollar became cheap.  The dollar’s decline drove up the price of all commodities, including oil.  Does anyone see history repeating itself here?

I’m not saying it’s impossible for oil to spike – certainly circumstances could take a surprising turn.  But history suggests that Iran will continue to export oil irrespective of the outcome of the unrest.  Iran needs dollars.

Regardless of near-term uncertainty, I remain bullish on energy and, in particular, China’s Petrochina (PTR) and Brazil’s Petrobras (PBR).  Both are plays on oil’s long-term secular growth and two of the world’s three most dynamic markets – India being the other emerging global dynamo.