Scenario risk for oil - the growing role of Iran as a regional power

We are strong followers of George Freidman and the folks at Stratfor global intelligence. There views are always insightful and can be used as a jumping off point for discussions on scenario risks for commodity and other asset markets. One of their latest pieces "The Turkish Role in Negotiations with Iran" is very helpful with looking at geopolitical risks in the Middle East. That is always going to effect the price of oil.

The risk for Iran has always centered with most news pundits on the nuclear threat. That threat has declined after serving as a focal point for Middle East geopolitical risk. Negotiations are being held. Threats will be made. Peace will be achieved, but the bigger issue is still very conventional. Who will control the Middle East region?

The control of the Middle East will not but just about pure military power although we are seeing Saudi Arabia rearm in order to restore or offset the coming power imbalance. What is more important is the political influence that occurs when there is a dominant regional power. To that end, Iran will fill the void in Iraq from the withdrawal of the US. The US is focused in Afghanistan which is regional just not that important. Iran is going to have an extremely strong influence in Iraq which will effectively extend its borders to Saudi Arabia. When you include its influence with the Palestinians, their influence extends across the region slicing the region into Turkey in the north, Saudi Arabia in the south, and Iran in the middle.

The conventional power of Iran will be strong without nuclear weapons. The influence will start to grow in the oil markets because it will enhance its influence with all other oil players. Both Europe and China will want to accommodate the desires of Iran because nay spikes in oil will come through the actions to unduly influence Iran.

This issue is more likely to increase in the minds of policy-makers if we start to see a tightening of oil markets in 2011. This was not a problem when inventories were high but should start to boil over as the US withdraws from the region.