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Petrodollars
REVIEWED BY JAMES CHEN Updated Jun 4, 2019

What Are Petrodollars?

Petrodollars are U.S. dollars paid to an oil exporting country for the sale of the commodity. Put simply, the petrodollar system is an exchange of oil for U.S. dollars between countries that buy oil and those that produce it.

The petrodollar was the result of the oil crisis in the mid-1970s when prices spiked to record levels. It helped increase the stability of oil prices denominated in U.S. dollars. The term regained notoriety in the early part of the 2000s when oil prices rose once again.

Although petrodollars initially referred primarily to money that Middle Eastern countries and members of the Organization of the Petroleum Exporting Countries (OPEC) received, the definition has broadened to include other countries in recent years.

Understanding Petrodollars

Petrodollars are oil revenues denominated in U.S. dollars. They are the primary source of revenue for many oil-exporting members of OPEC, as well as other oil exporters in the Middle East, Norway, and Russia.

Because petrodollars are denominated in U.S. dollars—or greenbacks—their true purchasing power relies on both the core rate of U.S. inflation and the value of the U.S. dollar. This means petrodollars will be affected by economic factors the same way the U.S. dollar is affected. So if the value of the dollar falls, so does the value of petrodollars, and thus the government's revenue.

History of the Petrodollar System

The origins of the petrodollar system go back to the Bretton Woods Agreement, which replaced the gold standard with the U.S. dollar as the reserve currency. Under the agreement, the U.S. dollar was pegged to gold, while other global currencies were pegged to the U.S. dollar. But because of massive stagflation, President Nixon announced in 1971 that the greenback would no longer be exchanged for gold to boost economic growth for the U.S.

That led to the creation of the petrodollar system, where the U.S. and Saudi Arabia agreed to set oil prices in U.S. dollars. That meant any other country that purchased oil from the Saudi government would have to exchange its currency into U.S. dollars before completing the sale. That led the remaining OPEC countries to follow suit and price their oil in U.S. currency.

Key Takeaways

Petrodollars are U.S. dollars paid to an oil exporting country for the sale of oil, or simply, an exchange of oil for U.S. dollars.

Petrodollars are the primary source of revenue for many OPEC members and other oil exporters.
Because they are denominated in U.S. dollars, the purchasing power of petrodollars relies on the value of the U.S. dollar. When the greenback falls, petrodollars do, too.

Petrodollar Recycling

The petrodollar system creates surpluses, known as petrodollar surpluses. Since petrodollars are basically U.S. dollars, these surpluses lead to larger U.S. dollar reserves for oil exporters.

These surpluses need to be recycled, which means they can be channeled into domestic consumption and investment, used to lend to other countries, or be invested back in the United States through the purchase of bonds and T-bills. This process helps create liquidity in financial markets in the U.S.

By investing their surpluses, these exporters reduce their dependence on oil revenue.

The Collapse of the Petrodollar System?

With the decline in the purchasing power of the greenback, some nations started to debate the benefits of the petrodollar system. Countries like Iran, Russia, and India have considered shifting the base value of their exports in their own currency rather than the U.S. dollar.

In late 2017, China announced that it considered moving to price oil in the yuan. Because it is the world's biggest importer of oil, China saw it as a logical shift to price the world's most important commodity.

Why The Petro-Dollar Is A Myth, And The Petro-Yuan Mere Fantasy

Douglas Bulloch

China's recent introduction of yuan-denominated oil futures has attracted some fairly extensive press commentary. Partly this is down to a habit of over-interpreting everything happening in China as just more evidence of their unstoppable rise to global superpower status, but it is also due to some profound misconceptions about the importance of oil as a commodity. It is widely thought, for example, that oil somehow underwrites the global financial system and guarantees the U.S. dollar's hegemonic status.

Inevitably, stories about the toppling of the "Petro-dollar" and the long yearned for rise of an alternative reserve currency, one not dependent on the whims of a capricious political elite in Washington, have proliferated across the alter-net and on the state-backed media platforms of Russia and China.

But we should be clear: the Petro-dollar does not exist, and really hasn't done in any meaningful way since the 1970s, therefore the "Petro-yuan" has no future. This is not to say that oil will never be traded in yuan, that is likely, but it is to say that trading oil in yuan will not suddenly transform the currency into the global reserve many claim is inevitable.


Origins Of The Petro-Dollar

The myth of the Petro-dollar comes from efforts in the 1970s to prevent the U.S. suffering severe negative effects in its balance of payments from rising oil prices. Until the late 1960s the U.S. had been an oil-exporter, but by also being an oil consumer they had never sought to maximize the rent from oil production by driving prices upwards. OPEC countries, however, never had such qualms and when the opportunity arose as the U.S. became an importer, happily restrained supply to drive prices, and their own national incomes, higher. The U.S. was worried about the resultant trade deficit caused by suddenly having to pay vast amounts for necessary imports, and so secured the agreement of Saudi Arabia to only trade oil in U.S. dollars, meaning the U.S. could pay for oil in their own currency. Saudi Arabia, for their part, accumulated huge reserves of U.S. dollars, investing some of them back into the U.S. economy.

The enormous lake of U.S. dollars this created augmented the role of the dollar as the global reserve currency, being a highly liquid, easily-exchanged claim on the products, services and investment potential generated by the U.S. economy. But this was merely one step in the rise of the greenback as the global reserve. The next step came when other economies–East Asia in particular–followed the lead of the oil producers and also built up huge reserves of U.S. dollars, all of which was made possible by the abandonment of the Bretton Woods fixed exchange rate system in the early 1970s. This practice helped to keep exchange rates for exporters low, and kept a lid on inflation in the U.S., which suited everyone up to a point.

Future Petro-Yuan?

Bringing this up to date, it was a long time ago when the link between oil and the dollar mattered much at all beyond the financial returns of non-dollar based oil companies. Since the 1980s, the dollar has been consolidated as the global reserve currency because of the strength and dynamism of the U.S. economy, and oil exporters have demanded to be paid in U.S. dollars because that's the currency they prefer to hold on to. To do otherwise is to take on exchange risk. Exporters can, and routinely do, accept payment in whatever exchange medium they wish -- tanks, planes and construction services -- but their central banks demand dollars for reasons entirely unconnected to oil. Because the U.S. dollar is a hard currency, easily exchangeable, underwritten by the U.S. taxpayer, and founded upon decades of broadly consistent macro-economic policy management.

Those who believe that oil being traded in U.S. dollars gives the U.S. economy a unique advantage in the global economy have it exactly the wrong way around. The U.S. economy is the central economy in the global system because it is the most open, innovative, and productive economy in the world, and because of this, the U.S. dollar is the most convenient, liquid and reliable medium of exchange. One can imagine another currency challenging it at some point in the future, but only on the basis of the openness of its underlying economy, and the depth of the capital markets denominated in it. And if the euro can't do it yet, why does anyone imagine the yuan is up to the job?

A filling station of Sinopec, China Petroleum and Chemical Corporation, in Shanghai. China launched yuan-denominated oil futures contracts on March 26, marking the first time foreign investors will have access to Chinese commodity futures as the world's top crude importer seeks greater influence over global prices. (JOHANNES EISELE/AFP/Getty Images)
A filling station of Sinopec, China Petroleum and Chemical Corporation, in Shanghai. China launched yuan-denominated oil futures contracts on March 26, marking the first time foreign investors will have access to Chinese commodity futures as the world's top crude importer seeks greater influence over global prices. (JOHANNES EISELE/AFP/Getty Images)
Furthermore, the U.S. dollar's position as the global reserve currency has been underwritten by Chinese economic policy. China has deliberately built up a huge pile of U.S. dollar-denominated reserves which, contrary to much press coverage and occasional threats of a big selloff from China, confirms rather than undermines the dollar's status.

Yuan-Denominated Oil Futures?

When China, like any other economy, allows the trading of oil futures in yuan, the contract merely promises dated delivery of oil in exchange for yuan. The contract does not supply the oil, it does not forward the yuan to an oil producer, it is merely a transaction that allows a buyer guaranteed delivery of oil by paying for it in yuan. The counter-party has to supply the oil in exchange for the yuan. Somewhere along the supply-chain someone will be paying in U.S. dollars, unless the ultimate supplier wishes to hold yuan. And despite the fanfare over the last few years, the yuan still comprises a tiny share of foreign exchange reserves held globally. Indeed, at 1.1% of the total, the yuan is significantly behind both the Australian and Canadian dollars, meaning that–with pound sterling–Queen Elizabeth II's head appears on 7.5 times more foreign currency reserves than Mao's. If China wants to change that, it will need to open up its economy, liberate its capital account and start living up to, rather than repudiating, its reform promises. Shanghai-traded oil futures in themselves have nothing to do with it.

China Is Betting Big On Increasing Oil Production

Ed Hirs

China’s initiative to increase 2019 capital investment in oil exploration by 20%, to $77 billion, in order to boost production in two old oilfields signals a new strategic direction. The goal is to increase domestic production by 50%, up more than 2 million barrels per day over the next five years.

Even as China is working to stave off declines in its established fields, both its internal demand and global demand for oil are projected to grow. That growing demand will easily outpace China’s expanded production and may strain world supply at current prices.

Why? Current Chinese domestic oil production is not expected to exceed 4 million barrels per day in 2019, while the country imports more than 10 million barrels per day to meet domestic demand. Just 25 years ago, the Chinese were able to satisfy all of their domestic demand by producing 4 million barrels per day.

For perspective on that $77 billion, ExxonMobil’s exploration and development budget for 2018 was only $20.2 billion to produce 2.2 million barrels per day, plus natural gas and NGLs. China’s investment is aimed at boosting its production to 6 million barrels per day at an annual investment of $38,500 per prospective flowing barrel per day. Contrast this with $29,500 per flowing barrel paid by Canadian Natural to Devon for current oil sands production, or with $36,000 per flowing barrel in the US Gulf of Mexico. US onshore transactions have valuations between $45,000 and $65,000 per flowing barrel per day. All of this is to say that for China, oil is a strategic asset worth much more than its price on the world market.

This major push to expand the Asian nation’s production of hydrocarbons raises a number of questions, from the potential impact on global oil prices to whether China will be able to successfully mimic the unprecedented success of the shale revolution in the United States.

In fact, China is now in a situation not unlike that facing the US oil market just 10 years ago. An interruption in oil supplies worldwide, such as cutting half of the oil flowing through the Strait of Hormuz, would drive up the price of oil, in addition to reducing access to oil.



The impact of an unexpected supply interruption of 10 million barrels per day, or approximately 50% of the throughput of the Strait of Hormuz. Derived from “Crude Oil Imports and National Security” by Robert Ames, Anthony Corridore, Ed Hirs and Paul W. MacAvoy.

The impact of an unexpected supply interruption of 10 million barrels per day, or approximately 50% of the throughput of the Strait of Hormuz. Derived from “Crude Oil Imports and National Security” by Robert Ames, Anthony Corridore, Ed Hirs and Paul W. MacAvoy. HIRS
And reduced access to oil would be a problem for China.

Strategically, China is concerned about its ability to project a strong blue-water navy across the globe without its own secure supplies of oil. An interruption in global supplies would place added pressure on China to extend its military to protect trade routes around the world. Diverting domestic supplies to the military in a time of global shortages would have serious, negative implications for the Chinese economy.

The value of oil to China goes beyond the price on the global market, but instead considers what that oil allows China to accomplish with its domestic economy and global influence. That is, China’s government values domestic oil as a derivative of domestic GDP. Oil makes up barely 10% of China’s gross energy consumption while coal, the primary contributor to China’s smog and CO2 emissions, makes up more than 60% of gross energy supply. Building domestic oil supplies—and the supplies of natural gas, nuclear and renewable energy—is necessary to accelerate the retirement of coal-fired power plants.

Because the main Chinese oil and gas companies – including the China National Petroleum Corporation and the China National Offshore Oil Corporation – are publicly listed on both Chinese and US stock exchanges, the new capital investment initiative has caused share prices to fall. The potential rates of return for the old oilfields are not expected to be great. Public shareholders may have to weather lower rates of return as the government essentially uses investors’ funds for its own domestic initiatives.

The increased $15 billion in spending will be a boon for all oil service companies doing business in China, including, of course, Schlumberger, Halliburton, Baker Hughes, NOV and others. Assuming that the Chinese government maintains the initiative, the increased sales and profits for these companies will balance any weakness in the US shale plays.

Will Shale Work In China?

But the main difference between China now and the US in the 1990s is that US producers developed hydraulic fracturing for shale plays that have driven up oil and gas supplies domestically. The dramatic change in gas supplies drove domestic natural gas prices down from $11 per thousand cubic feet in in 2008 to less than $3 per thousand cubic feet today.

China has been actively pursuing US shale technologies for more than a decade via joint ventures with US companies in the US shale basins. In China, the recently announced Shell and Sinopec venture will target East China fields. An earlier venture with Hess proved noncommercial.

But with all things remaining equal, apart from China increasing production, what will be the likely impact on world market prices? Adding 2.0 million barrels per day to the world supply will decrease price by 50% utilizing the same analysis applied above to a supply interruption. The challenge for Chinese authorities will be to add to world supplies in a fashion that does not drive down domestic profits and eliminate a competitive return on capital for their public shareholders.

See what I mean? Death-lover, abroad or at home. Death-over.

Don't be such a leftist. Bringing your terrorist buddies to justice is a good thing.

This is a good article.

Death lover, home or abroad the same thing. Death-lover.

You're not looking at a larger picture...

Iran "responsible" for tanker attacks in Gulf of Oman, Pompeo says
JUNE 13, 2019 / 7:47 PM / CBS/AP


Dubai, United Arab Emirates — Two tankers were attacked Thursday near the strategic Strait of Hormuz, marking the second time in a month tankers have been seriously damaged in the region. U.S. intelligence pointed to Iran as being responsible for the attacks, Secretary of State Mike Pompeo said Thursday.

"This assessment is based on intelligence, the weapons used, the level of expertise needed to execute the operation, recent similar Iranian attacks on shipping and the fact that no proxy group operating in the area has the resources and proficiency to act with such a high degree of sophistication," Pompeo said.

Pompeo said U.S. Ambassador to the United Nations Jonathan Cohen would raise the issue at a hastily called meeting of the Security Council on Thursday. The U.S. mission to the U.N. requested the Security Council hold closed-door consultations Thursday on the situation in the Middle East.

Thursday's attack near the vital shipping channel of the Strait of Hormuz was "only the latest in a series of attacks started by Iran and its surrogates against American and allied interests" aimed at "escalating tension," Pompeo said. "On April 22nd, Iran promised the world it would interrupt the flow of oil through the Strait of Hormuz. It is now working to execute on that promise."

He said the U.S. would defend its forces and interests in the region but gave no specifics about any plans for retaliation, and he took no questions.

A U.S. defense official earlier dismissed an Iranian claim to have rescued the crews of both vessels in the Gulf of Oman as "patently false." He said the USS Bainbridge picked up 21 crew members. Iran claimed it dispatched search teams that rescued 44 sailors from the two vessels.

A U.S. defense official told CBS News that the U.S. has video of a small boat coming alongside one of the tankers that was attacked and removing an unexploded "limpet" mine — a type of explosive that can be stuck manually to the side of a vessel. It is the same type of weapon U.S. officials say Iran used to attack four oil tankers off the nearby Emirati port of Fujairah last month.

A U.S. official said earlier that American authorities expected to recover sufficient debris from the Thursday attacks to trace them back to their source. The official said any retaliation from the U.S. would depend on the evidence found linking the attacks to Iran, and on the attitudes of other Gulf countries. After the four tankers were attacked last month, key U.S. ally and Iranian arch-rival Saudi Arabia had no appetite for retaliation. That may now have changed, the official told CBS News.

"Suspicious" timing?

The attacks come amid heightened tension between Washington and Tehran, and the timing was sensitive; it came as the Japanese leader was visiting Iran to try and rekindle diplomacy to ease the standoff. Japan's Trade Ministry said the two vessels struck on Thursday were carrying "Japan-related cargo."

Iran's foreign minister described the attacks as highly suspect, given the timing with Japanese Prime Minister Shinzo Abe meeting in Tehran with Supreme Leader Ayatollah Ali Khamenei.

"Suspicious doesn't begin to describe what likely transpired this morning," Foreign Minister Mohammad Javad Zarif said in a tweet. He didn't elaborate.

On Wednesday, after talks with Iranian President Hassan Rouhani, Abe had warned that an "accidental conflict" could be sparked amid the heightened U.S.-Iran tensions, which he said must be avoided. His message came just hours after Yemen's Iranian-backed Houthi rebels attacked a Saudi airport, striking the arrivals hall before dawn and wounding 26 people Wednesday.

Tensions have escalated in the Mideast as Iran appears poised to break the 2015 nuclear deal with world powers, an accord the Trump administration first unilaterally backed out of last year.

Khamenei, meanwhile, reiterated his regime's long-standing insistence that it does not seek to obtain nuclear weapons, but he added that "America could not do anything" to stop Iran if it did

Benchmark Brent crude spiked at one point by as much 4% in trading after the reported attack to over $62 a barrel, highlighting how crucial the Strait of Hormuz is to global energy supplies. A third of all oil traded by sea passes through the strait, which is the narrow mouth of the Persian Gulf.

The attacks

Cmdr. Joshua Frey, a spokesman for the U.S. Navy's 5th Fleet, said American military ships assisted the two vessels. He did not say at that time how the ships were attacked or who was suspected of being behind the assault.

The Norwegian shipping firm Frontline confirmed Thursday that one of its tankers, the Front Altair, was in flames after an incident in the Gulf of Oman, according to Reuters. It cited the Norwegian newspaper VG, which quoted a company spokesman. The spokesman said all 23 crew members were taken onto a nearby vessel.

A U.S. Defense official told CBS News it may not be possible to save the Front Altair which is in danger of sinking. As for the Kokuka Courageous the chief concern is to prevent it from drifting into Iranian territorial waters.

Reuters also quoted a senior official of Taiwanese state oil refiner CPC Corp as saying the Front Altair, a tanker chartered by CPC to carry fuel from the Middle East, was apparently hit by a torpedo.

Front Altair had been loaded at a port in the Gulf with naptha, a petroleum product, and was on its way to the Far East.

Separately, a spokesman for BSM Ship Management told Reuters that one of the vessels it manages, the Kokuka Courageous, was damaged in "a security incident" in the Gulf of Oman on Thursday. He said all 21 crew members abandoned ship and were quickly rescued, adding that the incident damaged the ship's starboard hull.

"The Kokuka Courageous remains in the area and is not in any danger of sinking. The cargo of methanol is intact," Reuters quoted the spokesman as saying.

Reuters reported that a shipping broker said there was an explosion "suspected from an outside attack" on the Kokuka Courageous – and it may have involved a magnetic mine. Japanese shipping firm Kokuka Sangyo, the vessel's owner, said it was struck twice in three hours, Reuters added.

The United Kingdom Maritime Trade Operations, a maritime safety group run by the British navy, first put out the alert early Thursday, giving coordinates for the incident some 25 miles off the Iranian coastline.

What bigger picture is there to look at?

Iran has been asking for it for a very long time. Maybe they will finally get what they deserve.

Leftists are horrified at the thought of their terrorist buddies being brought to justice.

Moves and counter moves.

We're behind the eight ball.

The US Air Force knows what to do to Iran. All our leaders need to do is release the restraints.

That's not going to happen. It's the least of our worries.

Trump Undercuts Bolton on North Korea and Iran
John R. Bolton, the national security adviser, has never clicked personally with President Trump, according to other advisers to the president.
Credit
Erin Schaff/The New York Times

By Peter Baker and Maggie Haberman
May 28, 2019

WASHINGTON — President Trump was grousing about John R. Bolton, his national security adviser, at his Florida club not long ago. Guests heard the president complaining about the advice he was getting and wondering if Mr. Bolton was taking him down a path he did not want to go.

For a president who runs hot and cold on nearly all of his advisers, private carping may not mean that much. But in recent days, the disconnect between Mr. Trump and his national security adviser has spilled over into public, sowing confusion around the world about America’s foreign policy, particularly on matters of war and peace.

The disparity was on stark display during Mr. Trump’s four-day visit to Japan that ended Tuesday after he contradicted Mr. Bolton on high-stakes confrontations with both Iran and North Korea. The president declared that, unlike his national security adviser, he was not seeking regime change in Iran and he asserted that, contrary to what Mr. Bolton had said, recent North Korean missile tests did not violate United Nations resolutions.

In playing dove to Mr. Bolton’s hawk, Mr. Trump may be simply keeping adversaries off balance, as some backers maintained. But questions about his relationship with his chief foreign policy coordinator have profound implications for the president as he tries to manage standoffs in Asia, the Middle East and South America without alienating the United States’ allies.

These guests have no names? No real source, most likely hearsay. Just a reporter telling you what somebody thinks about the relationship. An opinion piece. And from the NYT.

UN warns against 'Gulf confrontation' after tankers damaged
Warning from UN comes as global concern grows over reported attacks on tankers near the Strait of Hormuz.

6 hours ago

The United Nations has warned the world cannot afford "a major confrontation in the Gulf" as international concern grew over suspected attacks on commercial ships near the Strait of Hormuz.

UN Secretary-General Antonio Guterres denounced Thursday's incidents at a Security Council meeting, saying: "I strongly condemn any attack against civilian incidents. Facts must be established and responsibilities clarified."

The reported attacks in the Gulf of Oman off the coast of Iran left one ship ablaze and both adrift, forcing scores of crew to abandon the ships. They were the second in a month near the strategic Strait of Hormuz, a major waterway for world oil supplies.

And though details of what happened were still scarce, the incidents came amid heightened frictions between the United States and Iran.

US Secretary of State Mike Pompeo accused Iran of being behind the reported attacks, hours after Tehran called the incidents suspicious.

Speaking at a press briefing in Washington, DC, Pompeo said the US held Iran "responsible".

"This assessment is based on intelligence, the weapons used, the level of expertise needed to execute the operation, recent similar Iranian attacks on shipping, and the fact that no proxy group operating in the area has the resources and proficiency to act with such a high degree of sophistication," Pompeo said.

He did not provide hard evidence to back up the US stance.

Earlier in the day, Iran's Foreign Minister Mohammad Javad Zarif said the timing of the incidents was "suspicious" since they coincided with a meeting between the country's supreme leader and Japan's Prime Minister Shinzo Abe, who was in Tehran on an unprecedented visit to defuse the US-Iran tensions.

"Suspicious doesn't begin to describe what likely transpired this morning," said Zarif, without elaborating further.

'Major escalation'

The US has blamed Iran for earlier attacks on oil tankers, saying Iranian-made limpet mines were used to attack four oil tankers on May 12 off the Emirati port of Fujairah. Tehran dismissed the allegation as "ridiculous" and called for dialogue between countries in the Gulf to ease what it called an "alarming security situation" in the region.

Earlier in May, Washington had sent troops and warships to the region to counter unspecified threats from Iran. The deployment came a year after Washington exited a multinational accord that lifted sanctions on Iran in exchange for curbs on its nuclear programme.

It also reimposed and tightened sanctions on Tehran.

Zarif said the incidents on Thursday show Iran's proposed regional forum was "imperative".

Meanwhile, a spokesman for the Saudi Arabia-led coalition fighting Houthi rebels in Yemen called the suspected attacks a "major escalation" and linked them to attacks in July 2018 on two Saudi oil tankers the Red Sea.

"From my perspective ... we can connect it to the Houthi attacks at Bab al-Mandeb," Colonel Turki al-Maliki told reporters in Riyadh. The Saudi-led coalition accuses Iran of arming the Houthis, but Tehran denies the allegation.

In recent weeks, the Houthis have responded to Saudi-coalition's intensified raids on its positions by stepped up attacks inside Saudi Arabia, including on its oil infrastructure.

Ahmed Aboul Gheit, secretary-general of the Arab League, on Thursday, called on the UN security-general to maintain security in the Gulf. "Some parties in the region are trying to instigate fires in the region and we must be aware of that," he told the 15-member council, without naming anyone.

Speaking at the same meeting, Kuwait's Foreign Minister Sheikh Sabah Khaled al-Sabah described the tanker incidents as "the most recent event in a series of acts of sabotage that are threatening the security of maritime corridors as well as threatening energy security of the world".

Qatar also weighed in, calling for an international investigation and a de-escalation of tensions. In a statement, the Qatari foreign ministry condemned what it called acts of destruction "regardless of who is behind them".

German Foreign Minister Heiko Maas, who was in Tehran last week, also urged de-escalation from all sides in the Gulf, saying that even though the facts are still unclear, the incident is "extremely disturbing".

'Extreme caution'

Thursday's events have also prompted concern from maritime agencies.

"The shipping industry views this as an escalation of the situation and we are just about as close to a conflict without there being an actual armed conflict, so the tensions are very high," said Jakob P Larsen, the head of maritime security for the shipping association BIMCO, which represents some 60 percent of the world's merchant fleet, including owners of the two damaged tankers.

Norway's foreign ministry said it "is concerned about the situation in Oman Bay" and that "this type of incident further increases tension in the region". The Norwegian Maritime Authority meanwhile advised ships "to keep a good distance to Iranian waters" in light of Thursday's events.

The UK's Maritime Trade Operations, which is run by the British navy, also put out an alert early on Thursday urging "extreme caution".

Following the suspected attacks, the benchmark Brent crude spiked at one point by as much four percent to over $62 a barrel.

A third of all oil traded by sea, which amounts to 20 percent of oil traded worldwide, passes through the Strait of Hormuz making it one of the world's most important sea lanes.

Paolo d'Amico, chairman of the International Association of Independent Tanker Owners, said he was concerned about further disruption in the area, warning the "supply to the entire Western world could be at risk."

"I am extremely worried about the safety of our crews going through the Strait of Hormuz," d'Amico said in a statement.

Cleopatra Doumbia-Henry, president of the World Maritime University, added that any major disruption of shipping in the Gulf would "have significant consequences on shipping markets because it affects oil tanker capacity as well as the cost of operation".

"It also has implications for insurance, the crew and additional protective measures needed to keep ships moving," she told Al Jazeera from Malmo in Sweden.

Big deal.

You're not looking at the larger picture...

China’s Oil Imports Slump In May As Beijing Slashes Iran Imports
By Tsvetana Paraskova - Jun 10, 2019, 11:00 AM CDT

China’s crude oil imports dropped in May from a monthly record in April, as Chinese refiners drastically reduced Iranian oil imports after the end of the U.S. waivers and as some state refineries were offline for planned maintenance.

According to data from China’s General Administration of Customs, reported by Reuters, Chinese crude oil imports fell by 8 percent from 43.73 million tons in April to 40.23 million tons in May. This, converted in barrels per day, is an 11-percent drop from April to May, to average 9.47 million bpd last month, according to Reuters estimates.

According to Seng Yick Tee, an analyst with Beijing-based consultancy SIA Energy, the key reason for the lower Chinese crude oil imports in May was the sharp drop in imports from Iran as the U.S. ended all sanction waivers for Iranian customers on May 2, including for Iran’s biggest oil buyer China.

In April, just before the waivers ended, China had stocked on Iranian crude oil. China imported around 800,000 bpd of crude from Iran in April—the highest amount that Iran’s top oil customer had purchased since August of 2018—as Chinese refiners rushed to buy Iranian oil ahead of the expiry of the U.S. sanction waivers.

The surge in Iranian imports in April resulted in China setting a new monthly oil import record that month, despite the fact that there was refinery maintenance and fuel demand was lukewarm, analysts told Reuters at the time.

Apart from the sharp drop in Iranian imports and regular maintenance at several refineries, another factor for the decline in Chinese crude oil imports in May were the weak refining margins across Asia.

Although refiners in Asia are not left without choice for crude oil after the end of the U.S. sanction waivers for Iranian oil, the higher price of alternative supplies, as well as soaring fuel exports from China, are depressing refining margins across Asia.

Last month, reports emerged that persistent pressure on profit margins had forced Asian refiners to start considering a reduction in their run rates as Asia’s refining margins slipped to a 16-year low.

By Tsvetana Paraskova for Oilprice.com

Either are you or those reporters. Pretty simple to say what might happen. The source of the problem needs attention. Iran should be shown they can't pull this crap.

We could send John Kerry, Valerie Jarret, and Obama to Iran. And tell Iran they can keep them.