Iran’s Military Defenses in the Gulf

Tehran announced today that the Iranian Revolutionary Guards was now in charge of the country's naval defense of the Arabian/Persian Gulf. Previously, the regular Iranian Navy had the lead role in this effort.

Over the years Iran has repeatedly warned it would shut down transit of the Strait of Hormuz at the southeastern end of the Gulf if Iran were attacked by outside forces such as the United States or Israel. Over a third of the world’s oil, some of it Iranian passes through the Strait on oil tankers.

The Strait and other parts of the Gulf are routinely patrolled by U.S., Arab, European, and other warships. Occasionally, there have been tense incidents with Iranian vessels. Last winter Revolutionary Guards speed boats threw debris in the path of U.S. warships and made threatening radio calls. There have been fewer incidents of that type with the Iranian regular navy.

Major General Yahya Rahim Safavi, the top military adviser of Iran's supreme leader Ayatollah Ali Khamenei, announced the change at this morning’s press conference. He said "responsibility to defend the Persian Gulf" has been delegated to the Revolutionary Guards' navy. MG Safavi, himself a former commander of the Revolutionary Guards, said Iran’s regular navy was “assigned for the defense of the Gulf of Oman and Caspian Sea.” The Gulf of Oman is east of the Strait of Hormuz. The Caspian Sea is landlocked.

"The Guards' missiles are able to cover the whole width of the Persian Gulf. No warship can pass through the waterway without being in our range," he said. "Our armed forces, possessed with defensive weapons including missiles, air, sea and torpedoes, are able to control the Strait of Hormuz."

MG Safavi stated Iran's armed forces, including Army, IRGC and the 11-million-member Basij (militia) forces, were ready to stand up against any threat. Turning to Israel, he said, "the Zionist regime doesn't have the necessary political, economic and social capabilities to start a big war."

Concerning America, he noted, "In case of venturing into hostility with Iran, the US’s 200,000 troops in the region would be in serious danger."

America stepped its naval presence in the Gulf in recent years. Aircraft carriers are often in the confined waters of the Gulf and in the Gulf of Oman in order to provide air cover to U.S. Forces in Iraq and Afghanistan.

Tehran caused tensions with some Gulf Arab states over the occupation of some islands whose sovereignty has not yet been determined. Iran has had some clashes with the British Navy as well. They seized, and eventually released, a number of British sailors who were part of a boarding party trying to stop oil smuggling from Iraq.

Monday, Iran also announced an air defense exercise named “Defenders of Velayat.”

The commander of the Khatam-ul Anbia air base, Brigadier General Ahmad Miqani, said the “three stage” air exercise involved scores of aircraft and a large number of air bases countrywide.

Saudi Arabia launches a Billion Dollar 'Energy for Poor' Program

Saudi Arabia has launched an initiative to set up a billion dollar OPEC fund to help poorer countries cope with high oil prices. In addition, the Kingdom plans to offer a half billion dollars in soft loans, through the Saudi Development Fund, to countries struggling to make oil purchases at the elevated prices on the world market. Some of the Saudi money would go to finance energy development projects that would make countries less dependent on oil.

King Abdullah personally announced the creation of these efforts to help developing countries cope with high oil prices. King Abdullah also called on the World Bank to set up a conference for donor nations to discuss these initiatives.

Saudi Oil Minister Ali Al-Naimi recently said that the kingdom is willing to produce more than the 9.7 million barrels of oil a day for the rest of the year if the need arises. He also said that the Kingdom will invest a further $129 billion in the energy sector over the next five years to help increase production capacity. The Minister added that 'the current status of oil markets doesn't please anyone and that things are not in the interest of either consumers or producers'.

The King said that his country's policy, since the establishment of OPEC, has been based on adopting a fair price for petroleum that is beneficial to both the producers and the consumers.

'Starting from this policy, we have been allocating a great part of our income for the assistance development, and in the last few months we have increased our daily production of petroleum from nine million barrels to 9,700,000 barrels and we are ready to meet any additional requirements in the future', the King said.

Oil News Ahead of the Saudi Oil Summit

Tuesday, UAE Oil Minister Mohamed al-Hamli said a shortage of oil refineries is the main cause of record oil prices. He indicated that industrial nations have not built new refineries due to environmental concerns and this has caused a shortage in refined products and elevated prices at the pump.
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Also on Tuesday, Iran’s President Mahmoud Ahmadinejad said oil prices are being manipulated by “invisible hands” in a “fake way” for political and economic reasons. At an OPEC conference in the Iranian city of Isfahan, Ahmadinejad said the price rise is “completely fake and imposed.” He said the price increases are happening when “the market is full of oil and the growth of consumption is lower than the growth of production.” He said the price rise was due to the lower value of the dollar. "The hard currency reserves of OPEC countries have been heavily affected" by the fall in the dollar, he said. "I repeat my suggestion made six months ago at the OPEC summit in Riyadh to create a basket of credible currencies which would be the basis for oil transactions," said Ahmadinejad. "Or alternatively, that OPEC countries create a new currency for their transactions."
At the same meeting, Iran's OPEC representative, Mohammad Ali Khatibi, said Iran opposed any unilateral move by Saudi Arabia to raise its crude oil output without a consensus of OPEC member states. "Any output increase should be approved in the Organization of Petroleum Exporting Countries' ministerial meeting." Khatibi said, "If Saudi Arabia decides to increase its crude output unilaterally, it will be a wrong move."
Ironicaly, Iran’s opposition to increased Saudi production comes at the same time Iran plans to sell increased crude itself. National Iranian Oil Company official, Hojjatollah Ghanimifard, said yesterday that exports from the country will rise by 300,000 barrels per day to at least 2.5 million bpd this month and next as the country sells off excess oil it had been storing in tankers offshore because of refinery maintenance shutdowns. "The floating barrels will be cleared up by mid-August, we hope," Ghanimifard said. Ghanimifard did not say how much oil Iran is storing, but some analysts have estimated the amount at about 30 million barrels. Iran hopes to sell the oil at the current high prices and the Saudi increased production along with their planned sales cut cause a price reduction.
The refinery shutdowns and high prices have a major impact on another sector of the Iranian oil market – the domestic refined product market. Iran's government plans to ask parliament for $7 billion to pay for increasingly expensive fuel imports. Hojjatollah Ghanimifard, says the amount needed during the Iranian year that ends in March 2009 could rise even further if international gasoline and other fuel prices continued to rise.
He told the daily Tehran-e Emrouz newspaper in an interview on Monday that consumption was estimated at 80 million liters in Iran, above a figure of roughly 75 million liters given by officials when rationing was introduced for motorists in June 2007.
Officials had previously said both consumption and imports fell sharply after Iran launched rationing to curb soaring consumption which had risen well beyond its ability to refine crude, forcing the government to rely on expensive imports.
"If the (fuel) prices continue to rise the budget needed to import will be more than $7 billion. It will be around $9 billion," Ghanimifard was quoted as saying.
Iran's parliament authorized in February the Oil Ministry to import gasoline and gas oil for the equivalent of $3.2 billion in the fiscal year that started on March 21, but Monday's report made clear this would not nearly be enough.
Under the rationing scheme, all fuel had been sold at the heavily subsidized price of 1,000 rials (about 11 US cents) a liter. But the government revised the system starting from March to let drivers buy fuel above their 120 liter a month quota at 4,000 rials a liter.
One official said in October imports would decline by at least 20 percent to $4 billion in the 2007-08 Iranian fiscal year, from $5 billion previously.
In May, another official said Iran expects to import about 20 million liters of gasoline per day during the 2008-9 year, less than half the amount it would have imported had it not launched rationing a year ago.
But that figure was still 5 million liters higher than an import estimate given in February, before Iran allowed the sale of extra, higher-priced gasoline outside the rationing system.
Meanwhile Iran has more crude following an announcement last Suday that Iran has discovered a new sub-field within its southwest Jofeir oilfield that is expected to boost Jofeir's oil output to 33,000 barrels per day. Iran's new discovery is estimated to have reserves of 750 million barrels, according to Iran's Oil Minister, Gholamhossein Nozari.
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Meanwhile, Saudi Arabia will host a meeting on June 22 for oil producing and consuming countries where ways to control soaring energy prices will be discussed. America will participate as both a major producer and consumer. The US will send a delegation to Sunday's meeting in Jeddah, led by US Energy Secretary Samuel Bodman. Venezuela said it would not attend the meeting. China has indicated its Vice President, Xi Jinping, will attend. China is becoming a major oil consumer, accounting for about 40 percent of the growth in global oil consumption but recent earthquakes and bad weather have temporarily reduced China’s oil needs. British Prime Minister Gordon Brown will also attend the meeting. Iraq’s Oil Minister, Hussain al-Shahristani, said he will not attend the meeting.
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Iran and Malaysia's Amona Company have signed a $1.5 billion deal to develop the Resalat oilfield in the Persian Gulf. The Malaysian company will complete the project within three and a half years under terms of the contract. Iranian officials say that on completion of the project Resalat's daily output would increase from the current 8,000 barrels a day to 47,000 barrels a day. Resalat oilfield is located about 50 miles from Lavan Island in the Persian Gulf.
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Oil prices briefly shot up to $137 a barrel on world markets today after the Anglo-Dutch oil company Shell reported it had shut down production at a major offshore oil facility in Nigeria because of another militant attack. "We shut down production at the Bonga oilfield following an attack by unknown militants this morning," Shell spokesman Precious Okolobo told AFP. Violence in the southern Delta region has reduced Nigeria's total oil production by a quarter since January 2006.
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Reliance Industries, India's largest company, is increasing crude oil imports from Saudi Arabia as it seeks to secure supplies in the midst of rising demand in India and the rest of Asia, P.M.S. Prasad, president of the company's oil and gas business told Reuters. The company, which is building the world's largest refinery, is boosting purchases by at least 90,000 barrels a day, accounting for 30% of Saudi Arabia's output increase of 300,000 barrels a day this month.
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Oil revenues for Saudi Arabia, Kuwait and the UAE combined will be twice that of the US GDP if the high price of crude continues according to a Saudi investment company. If the annual average price hits $150, then the three countries will have a capital flow of $25.7 trillion, with $16.6 trillion going to the kingdom and the rest split evenly between Kuwait and the UAE. The GDP in the US, said Brad Bourland, Chief Economist and Head of Research at Jadwa Investment in Saudi Arabia, is $13 trillion. If the average price settles at $100, the three GCC countries will earn $17.2 trillion.
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An official in In Iraq’s Naft Al Janoub (Southern Oil Co.) confirmed yesterday that Iraq oil exports from Basra regained their normal level after storms had suspended oil tankers activity for 4 days. Exports were completely when storms stopped tankers from anchoring in Basra port at the beginning of the week. However, the official said that the amelioration in weather conditions allowed two tankers to anchor in the port on Tuesday.