Shutting Down Heavy?

Isaiah made a nice catch with this Bloomberg story that
Iran, OPEC's second-largest producer, shut two oilfields in the Persian Gulf because of difficulties selling the heavy oil the sites produce, said Royal Dutch Shell Plc, which helped develop the fields.

Iran shut the Soroush and Nowruz fields less than three months after Shell handed their operation to Iran, said a Shell official, who declined to be identified.

As many of us know, the esteemed Saudi Oil Minister Mr Al-Naimi has been saying for some time that they can't find customers for their heavy oil. With the exception of the Vanadium contaminated oil from the Manifa field, this hasn't made sense to me. While light sweet crude may have peaked, and price spreads have been rising, prices for heavy grades of oil are still over $50/barrel for grades like Iranian Heavy (30 degrees). Even Mexican Maya (22 degrees) is over $50. However, this story tends to back Mr Al-Naimi up.

So the question is, why don't the Iranians just lower their price, rather than shut the thing down altogether? Surely they'd be making money even if they were only getting $30/barrel for the Soroush oil? The obvious explanation to a peak-oiler is that they are pretty confident they'll get more than $50 in the future, so they're going to shut it in and wait rather than discount it more now. However, we need some actual evidence before we can be confident that is the explanation. I'd be grateful if anyone can shed any light on this.

I checked into it a little and was able to verify that the Soroush and Nowruz field do exist and Shell has been redeveloping them after they were destroyed in the Iraq/Iran war.

Here's a picture of the Soroush platform:


is it because it will be worth more in the future?
and with refineries running at full tilt there is no point at the moment..
do iran need money right now?

here is an article from reuters covering todays oil prices 14Z_01_KNE260239_RTRUKOC_0_US-MARKETS-OIL.xml

sorry my browser is having problems with the right hand side of the screen.
missed the obvious point of keeping oil for later
Iran is typically an OPEC hawk as I recall, generally not in favour of over-producing.

There is a lot of oil in the system and not a lot of excess capacity to refine it; they might simply be making a prudent call in keeping with this history on production limits.

Lastly... perhaps discussed elsewhere or in the Bloomberg piece, Iran is still at odds with the EC, UN and US regarding its nuclear program. This may be sending a message in a subtle way. /mw

Stuart, your guess sounds right. If peak oil is a reality and close, then shutting in production makes sense because the overall trend has to be upwards. It's a smart move, for the Iranians at least.

What does that do to total current global supply though and how will such actions impact total global supply, and by extension global price? I'm just guessing but wouldn't that serve to drive prices up further given that supply and demand were barely matched already?

What happens when more oil exporting nations (particularly those with substantial and/or growing domestic consumption) start using this line of reasoning and slow down oil extraction?

That doesn't sound like very good news for oil consumers to me (to put it mildly).

No, slowing production is not good news for importing consumers. And add in a similar issue you hint at: many countries will probably continue to pump, but hold the production for their own domestic use. It's a key question: is oil becoming less fungible?
This is an excellent example of why I've been arguing for a long time that you can't apply the conventional production peak model that works reasonably well for individual fields or countries or regions, to the entire world.  As we approach the global peak the decision makers in governments and oil companies know that we're approaching the peak, so it alters their behavior.

The sum of these effects will be to flatten out the production curve--the peak will be at a slightly lower productino level and arrive a bit later.  (At a macro level it's essentially the same as a worldwide tax on oil that reduces demand pre-peak.)

In fact, I think it's good news for almost everyone, as it increases both price pressure and public awareness of the PO issue earlier (both leading to greater demand response), and it also gives us at least a little more time to respond.

PO will still be nasty, brutish, and long, but I'll gladly take whatever early price signals we can get.

It also could be a strategic positioning to put them in the driver's seat as the swing producer instead of Saudi Arabia. As someone recently said to me - If the Saudis are pumping flat out, then anyone can cut back and become the default swing producer. Thus you hold the keys to the price and save more for tomorrow. Cutting back production is exactly what I would do if I were Iran, Venezuela or Russia.
If they can think long-term, you're right that cutting back will optimize revenues. But can these countries really afford to reduce today's oil revenues for a rosier long-term? I'd bet on short-term thinking.
Im curious how does heavy crude differ from light from refining perspective and how much more energy and money it requires?
Also how much if any does the end product differ from a refined barrel of heavy oil as opposed to a barrel of light sweet. Is the quantity of high value end products such as gasoline and jet fuel appreciably less where it might make a real difference.
Heavy crude does need additional processing equipment and procedures at greater cost. The main issue now is that refineries built only for light sweet crude (like many US refineries) cannot process heavy crude at all. Even if these refineries wanted to process heavy crude, they couldn't do it, and it would take years to add in the new  equipment. I think it's capacity, not extra costs, that is the big issue right now.
Were most of the refineris closed in USA sweet-light refineries?

Perhaps the refinery capacity cut in USA has not made any difference, it might even have been beneficial if it has made it easier to invest in equipment for handling heavy and sour crude.

Iran halts output at 2 offshore oilfield due to technical glitch.
But he [Vakil] said production at the Soroush field -- set to output 100,000 bpd -- should resume within days.
Probably making sure the self-destruct still works.
Ah - good catch.  The plot thickens....
Thanks peakguy for extracting The obvious from the noise .  the Iranians will, optimize , their own welfare via available lenses .  
I'm under the impression that China intends to use dollar cost averaging in order to build its reserves .  It is in the interest of Opec to make sure this doesn't happen .  

i've personally always rated the ft here is a fresh story from them

US to lobby Argentina on Chávez nuclear move
By Andy Webb-Vidal in Caracas
Published: October 12 2005 21:25 | Last updated: October 12 2005 21:25
Argentina is likely to face heavy US pressure to block any sale of a nuclear reactor to the Venezuelan government of President Hugo Chávez, which is seeking to develop nuclear technology, possibly with the help of Iran.

Venezuelan officials have confirmed reports in Argentina that Venezuela's state-owned oil company Petróleos de Venezuela in August asked Argentina to sell it a "medium-sized" nuclear reactor. Washington maintains an uneasy relationship with Venezuela, which some US officials see as a "destabilising" influence in Latin America, and the prospect of a nuclear-empowered Mr Chávez would complicate matters.

"The US government will not be excited about the idea and would likely put pretty heavy pressure on Argentina not to follow through," said a senior US defence official familiar with Latin American policy.

Venezuelan officials said this week they were interested in nuclear technology only for "peaceful ends" and that they were planning to despatch a team of scientists to Argentina to study that country's experience.

"The important thing is that the country is informed that the government wants to advance in new areas such as nuclear and atomic energy," said Rafael Ramírez, the energy minister.

Rafael Bielsa, Argentina's foreign minister, also confirmed that Venezuela had expressed an interest. Argentina has sold nuclear technology for reactor projects to countries such as Australia and Egypt.

However, analysts are sceptical not only about Venezuela's need for nuclear technology but also its ability to carry out such a programme. Venezuela, the world's fifth-largest oil exporter, has the largest proven oil reserves in the Americas, as well as sufficient hydroelectric generation capacity.

In the mid-1950s, the military dictatorship of General Marcos Pérez Jiménez acquired a small nuclear reactor from General Electric, but the technology was declared redundant in the 1980s and effectively shut down.

Miguel Octavio, a stockbroker in Caracas who formerly worked as a researcher at Venezuela's scientific research institute, said Venezuela had few nuclear physicists to develop atomic energy. "Today there is very little expertise in that field, you would have to train people, and it would take a long time," he said.

But the prospect of Venezuela developing atomic energy, for whatever end, is likely to continue to fuel speculation. Mr Chávez has said Venezuela supports the position of Iran in its stand-off with the US and Europe over Iran's nuclear programme.

Geologists say mineral-rich Venezuela has large deposits of uranium ore, especially in the south of the country. There have been reports in Venezuela in recent months alleging that joint ventures signed with Iran, for projects such as cement and tractor factories, may not be what they seem.

Argentina?  Nuclear reactors?

They don't play with the big boys but they do have a small export business:

"[Argentine companies] have developed the promising CAREM nuclear reactor. It is a modular 100 MWt/27 MWe simplified pressurised water reactor with integral steam generators designed to be used for electricity generation (27 MWe or up to 100 MWe) or as a research reactor or for water desalination. Recent studies have explored scaling it up to 300 MWe. CAREM has its entire primary coolant system within the reactor pressure vessel, self-pressurised and relying entirely on convection. Fuel is standard 3.4% enriched PWR fuel, with burnable poison, and it is refuelled annually. It is a mature design which could be deployed within a decade."

The last sentence is a hoot.

Note that 27 megawatts of electricity is a design detailing issue for commercial plants - that much gas gets flared every day in Venezuela.

Argentina is an NPT signatory and a member of the Nuclear Suppliers Group.  The plant described above is not a proliferation machine, unlike CANDUs.  It could make a couple kilograms of reactor-grade plutonium a year but that would require expensive reprocessing and someone to sell them fresh enriched fuel - not likely.

Argentina does make and sell heavy water and could probably sell more dangerous toys but why sell an assault rifle to your crazy neighbor?

There is something else going on here.  Nuclear power reactors ain't it.

And yet, why shouldn't they go nuclear. I was talking to someone about coffee in Cuba, how they export the good stuff and keep the worse for themselves. If nuclear power is going to be cheaper than oil soon they'd be nuts to not run a reactor and sell the more valuable oil. They'd make more money, and still have electricity.
In general, I agree.  That's why I specifically compared the Argentine reactor output to what Venezuela flares in natural gas - that's stuff they are not selling.  That's also why Iran's cover story is so good.

A little bitty reactor like that just doesn't seem to fit with Venezuela, which is fairly industrialized.

Of course, the US is not going to let anyone sell Chavez anything nuclear.

Iran and Venezuela both have significant quantities of Uranium.  Not like Canada or Australia, but more than enough to serve their domestic electricity needs for many decades.  This will open up oil and gas for transportation and chemicals, which makes excellent economic sense and is good for everyone in the near-Peak era.  

Iran's light crude may be running low thanks to hundred years of continued production.  But it's rich gas is clearly the next prize: with significant ethane, propane, and butanes it's just too good to be burned for electicity.  

It's time for Americans to stop seeing everything through George Bush's vindinctive world vision.


There really aren't many refineries able to handle heavy/sour. TO sell it Saudi/Iran probably have to compete with Venezuelan crude for the few refineries (eg Valero, which specializes in low grades), all of which are at max capacity. Saudi wouldn't sell their low grade stuff at fire sale prices - besides, none of the producers are exactly hurting for cash these days. On the other hand, it makes a lot of sense for Saudi (and Iran, too) to build refineries to handle this stuff, there may be ample takers for the product over the life of the refinery.
Does anyone have a copy of the FT story today about the IEA saying that the "oil market [is] precarious after hurricanes"?

It's mentioned on the left hand side of the TTLB homepage.

no but i found this, from todays ft

Crude oil prices rose yesterday after a report by the International Energy Agency, the energy adviser to the developed world, forecast a rebound in global oil demand.

At the risk of making a connection where there isn't any, could this move have anything to do with all the direct and implied threats being made by the US and Israel regarding Iran's alledged nuclear aspirations?

Could it be that by closing down its heavy oil production Iran is sending a subtle reminder to the West that it has the ability and the will to turn off the spigot in the event that it is attacked?  

I'm of course just speculating here, but I think that maybe it's a good reminder that a country's oil production decisions are not solely based on economics and are deeply intertwined with global power politics.

If the US and/or Israel did attack Iran, it wouldn't take too much imagination to picture the first thing Iran would do: stop oil exports and attack oil shipments going through the Straits of Hormuz. Despite our vast military superiority, I doubt we could fully prevent the latter: land-based cruise missiles are easy to hide, and a supertanker makes a pretty easy target.

Of course, you could turn this around 180 degrees and push the bounds of believability by saying that the bloomberg story eminates from a US conservative source that wants to show us that "those damn rag-heads are putting another knife to our throats. We better wade in their and slap their faces so they can't do this to us anymore."

Although, I am more inclined to believe the story that Dave posted above about it just being a temporary technical glitch.

If you look at a map, you'll see why it's called the Persian Gulf. ALL US military assets in the region will find themselves under attack when Bush launches his next war. Expect to see nukes used by Bush and aircraft carriers sunk by Iran along with a massive Shite uprising in Iraq.

Oil/gasoline prices would immediately spike and exports through the gulf would cease for quite some time. What the world would do in retaliation for US use of nuclear weapons is unknown but likely to NOT be trivial. And of course, there's a great likelyhood that waging war on Iran will be the first action in a war between China/Russia/Iran and the US that will provide the so-called deathwish-Christians their desire.

As for heavy oil, the world is awash with it; the Orinoco Oil Belt contains over one Trillion Barrels of the sticky goo. But as pointed out, big oil has yet to build the types of refineries capable of using the only oil to be widely available in the future.

As for nuclear power plants, the US proposes to build hundreds, while we deny Iran and Venezuela their right to build one. Those thinking Iran and Venezuela are the bad guys had better start reading the fine print.

The Iranian desire for nuclear power plants is not irrational and would be completely justifiable - if I believed that that's what they're doing and I trusted the guys doing the selling.

An interesting news item had the head of the Russian team who sold the "technology" to Iran ran away to Switzerland.  The US had him arrested but the Swiss court let him loose.  Then the Russians tried to have him arrested too!  I suspect that he's now a "non-person."

Unfortunately, I think they're developing nuclear weapons and that threatens the peace. The guys running the place are just about ten notches too aggressive to be trusted with nukes.

If you want a historical analogue, read Winston Churchill's "The Gathering Storm" about the history of Europe between WWI and WWII.  Or watch Reifenstahl's "Triumph of the Will."

This is going to end badly.  If so, our interest is that it ends worst for them than for us.

From an objective moral point of view, do the Iranians not have every right to defend themselves against the US menace that they face?  If so, then who can fault them for their desire to possess of nuclear weapons as a deterrent?  Certainly the US, which is increasingly revealing itself to be willing to use nuclear weapons in an OFFENSIVE mode, and not merely as a deterrent, is guilty of the grossest hypocrisy in their official rhetoric against the Iranians.
From "an objective moral view" the US should fund, support and arm the internal proponents of democracy within Iran.

The US has just removed the greatest proven threat to the Iranian people, the guy who started the Iran-Iraq war.  The mullahs are actively hostile to the West and to their neighbors.  They support terrorism.  They pronounce death sentences on authors of books they don't like.

And now they are building nuclear weapons.  For defense against whom?

Well GWB did declare Iran as one of the trifecta creating the Axis of Evil.  The weak sister of those three was invaded.  I would definitely be worried is I was running Iran that my country would be next in line.
If you want a historical analoge of the situation, you don't have to go back to the last 1930's and 1940's, just to the 2001-2003 time frame. Consider the US and Iraq. Now, if you're in Iran's shoes (or anywhere in the mideast other than Israel), wouldn't you want any and everything to help defend your people?

It's bandied about that the reason the US hasn't done anything about North Korea is because they have nuclear weapons. Wow, that makes a great statement that Yes, there is a santa claus... er, I mean Yes, nuclear weapons can act as a deterrant towards fighting.

More likely, I think that North Korea other than being an embarassment towards US 1950's history just isn't a threat. They don't export drugs (and of course, it's a supply problem, not a demand problem </sarcasm>), they don't have any valuable resources, and while they threaten our "ally" South Korea, they don't actually threaten the US.

Iran has known it's been on the US's bad side for a long time, and if we go a bit further back (but still more recent than WWII), we can see the cold war. What stopped the US and Russia from fighting? MAD. If I were any country who wasn't prostrating itself to the US, I'd want nuclear and rocket technology enough that the US would have a strong deterrant.

Meanwhile everyone knows the US has a lot of nukes, so unless one wants an end of most life on Earth, it would be stupid to try to acquire nuclear weapons for offensive purposes. But it makes sense to acquire them for a defensive purpose.

All that being stated, we're not talking about a nuclear weapons program here. We're talking about nuclear energy, and Iran has done everything that every other country has had to do regarding inspections. What the US wants is special inspections and more restrictions on Iran. And history has shown how great the extra inspections worked for Iraq.

Probably the Iranians are engaging in deceit when they claim to want access to nuclear technology for purely peaceful purposes; I myself at least find it very difficult to believe that their stated desire in this regard does not conceal ulterior motives of a military nature.  Certainly this Iranian mendacity (if my read of the situation is correct) is morally blameworthy.  But I would strongly assert that the Iranian mendacity is much less blameworthy than the deceit that is ubiquitously present in official American rhetoric, since the latter deceit conceals ulterior military motives not merely of a DEFENSIVE, but of an OFFENSIVE sort.
It's morally blameworthy to try to protect one's country? As stated previously, because of MAD (especially since Iran wouldn't necessarily have the rocket technology to reach the US) nuclear weapons aren't a good offensive weapon. But as a defense, they're pretty good (well, up until the US starts launching preemptive nuclear strikes).

Imagine a hypothetical, WWII ended because the USSR implemented nukes first, and nuked Germany and Japan, once each. The US continues working feverously on nukes so as to not be at the mercy of Russian nuclear capacity. Would you consider it morally blameworthy of the US to continue researching to try to get nukes after the War ended with merely an ominous threat from Russia? If you don't, how is the situation significantly different from Iran's perspective?

And I think that there's a lot more than just rhetoric which is morally blameworthy with the US.

An attack on tankers in the Hormuz strait would be a declaration of war on their neighbours and would make Iran a bully instead of a victim. This would be stupid and bad foreign policy, especially when stopping their export for a month or three while being careful to not say when they will restart is quite adequate retaliation.

If USA makes any kind of attack I guess Iran will try to destabilise Irak. Perhaps by supplying insurgents with SAM:s and other more advanced armements. If Israel attacks they will get an excuse for developing a way to make retaliotary strikes to make further attacks to costly.

I realy, realy, hope Iran will get more democratic and peaceful, this can otherwise get very ugly.  Remember that Iran has recently lived thru an equivalent to the first world war in the Iran-Irak war. They will probably do anything to avoid a repeat of that.

Dude, think man.  Just where are those attacking American military units gonna come from?  That's right, from the territories of those...victems as you outlined.  
I do not think USA can afford a full scale war with a ground attack.  But it is fairly easy for USA to attack by bombing a large number of targets and if they are well selected and hurts the covert nuclear weapons program they can get a fair ammount of international support for it.
International support? Not even our beloved Tony Blair would crawl that far up George Bush's arse. The UK Foreign Secretary, Jack Straw has described an attack on Iran as inconceivable.

The UK government was very nearly brought down by its support of the war in Iraq against enormous public opposition. The Spanish government was brought down.

I do not think there is a single government in Europe that would survive active support for an attack on Iran.  

It is time to realise that the spread of nuclear weapons is inevitable. The technology is not that difficult. There have  been a number of exercises where physicists with no special knowledge of nuclear weapons were asked to design one using only openly available information and succeeded in doing so. Some of these were done before the spread of personal computers and the internet which has made the task very much easier.
There is a huge amount of fissile material that went missing  from the former Soviet Union and separation technology is becoming easier.

Don't be fooled by the amount of effort that went into the Manhattan project into thinking anything like that effort is needed now. There are at least a dozen countries that are capable of developing nuclear weapons now and it likely that several will. More countries will soon develop the ability.

However much you and I find the idea ludicrous, we should not blind ourselves to the fact that a great many people in the world find the idea of America having nuclear weapons under the present administration a great deal more frightening than Iran having them. To them the fact that America has used nuclear weapons and has attacked many counties is justification for their own countries to have them.

Frightening though the thought is, Abdul Qadeer Khan is not anything like alone in having a clear conscience about helping other countries to develop nuclear weapons as  deliberate counterweight to American and Western power.

That word. I do not think it means what he thinks it means ;-)
As Vinterman said (yay for the Princess Bride), you might want to rethink what you can conceive of.

UK links Iraq explosions to Iran

There are more articles. In some of them I've noticed that the upper levels in the British military are spinning hard that this isn't exactly new or expensive technology and it could have come from anywhere, not just Iran. But hey, the Iraq dossier that the British plagerized was such a bang on job, I'm sure this Iran one will be great too. Bush hasn't been impeached, and Blair is still in power. Many things are conceivible, we'd just like to think that they should never happen.

Whatever Blair might wish privately, he knows that most of the cabinet would not countenance an attack on Iran and the parliamentary party would certainly not.  They are very sore at being inveigeled (those that were) into voting for the Iraq by the dodgy dossier and other stratagems. You may see a lot of spear waving but no action.
Uhh didnt anyone notice Dave's quote and link?  

This seems like a more logical explanation.  And it helps explain why Shell would want us to believe the fields were shutdown because of difficulty selling the heavy sour.

Actually, I don't know. theyre both good explanations.  
chavez/Venezuela /Iran : please allow me to Kick loose some dark thoughts .  my personal opinion /fear is that the people of the united states will be all too familiar with the concept of people oil by the spring of 2006 .  Just for fun, let's assume everybody catches on on April the first .  
The bottleneck in the gulf frankly terrifies me as an individual .  As a struggling intellect, I can also see a window of opportunity .  I suspect that Iran has not been nuked before this because the new world order could not abide the loss of their oil production .  The gulf bottleneck has rendered , for the near future , the inability of the united states to even utilize sour oil  production from Iran would suggest that this is the perfect time to act .  
Chavez is a vibrant , romantic, party animal on the world stage .  Chavez Doesn't understand that he is an adorable hamster caged with a sleepy python .
As described above , the U.S. cannot profit to any great extent from access to anything other than light sweet crude in the immediate future .  
It would seem, according to game theory, that acting  against either or both of these countries would disadvantage China by increasing oil prices.  
In the event anyone wishes to argue this point , please remember that I am a senior citizen , and should be treated gently for that reason .  
for those that would like to know where the Orinoco Oil Belt is and other info about it, it can be found here. approx half way down the page is a pic of the belt. g3

Are we are peak refinerey capacity?  ICF Consulting has a report out concluding the world is operating at peak refinery capacity.

ICF's report analyzes the period from 2005-2010.  It assumes, using IEA projections for world oil demand, that the world will need about 95 mbpd in 2010.  It also assumes the oil is out there.  ICF then concludes that, in order to process that oil, the world needs another  9mbpd in new refinery capacity to process all that oil.  It then analyzes known projects coming on-line and concludes there will be a shortage.  It does mention new refinery projects being talking about for the Middle East and China, but notes those aren't even in the engineering stage and with the long lead times, will not be ready by 2010.  Ultimate conclusion, there will be volatility in oil prices up to 2010 (maybe longer, possibly 2020) and that there will be competition between countries for what refined product there is.  

Although not addressed in the ICF report, it seems the refinery crunch is going to be compounded by the fact that the world past peak of light sweet crude in 2004, and that the existing refinery capacity was geared to processing the lighter grades of oil.  So, not knowing much about this issue, it seems as more and more heavier oil comes on line to replace the depleting light sweet grades, the refinery crunch could be worse than predicted by ICF (which never puts numbers, just uses the word "volatile").

Although it really doesn't matter why new refineries aren't being built, Boone Pickens has been quoted as saying the reason is there's not enough oil out there to justify it. Be that as it may, I would like to hear thoughts and comments here on TOD.  Is there agreement that the world is operating at peak refinery capacity?  If so, what are the ramnifications economically and politically?  If peak oil means the end of cheap energy, how is peak refinery capacity any different from the economic/political perspective?  Wouldn't it all end with the same result?  

In the end, there is a lot of debate about peak oil from a geological perspective, but little discussion on peak refinery capacity which may be upon us.

I was initially critical of the House bill to encourage new US refinery capacity.  It struck me that with declining domsetic extraction, the refineries could be anywhere and refined products could be shipped to our markets instead of crude being shipped to our refineries.

Mr. Pickens' point of view was also one I found a natural.

The rebuttal was that shipping costs for refined products were greater than shipping costs for crude.

Since then, I've retracted a bit.  If the proposed bill just made it less difficult to build a new refinery, then I'm for it.  I'll let the investors in a proposed refinery decide where they want to put their money.  I would like to see more investment and more jobs within the US.  Also refineries offer byproducts to local markets that might not be shippable.

In the end, the proper argument to my mind is not more US refineries or not but rather easier to permit refineries in the US or status quo.  

I come down on easier permitting.

I failed to include the title of the ICF report.  That report is titled "The Emerging Oil Refinery Capacity Crunch: A Global Clean Products Look."

We cannot blame the Saudis for this one; they have been complaining about tight refinery capacity for some time.
It seems likely that the shutdown of the Iranian fields was due to technical problems as noted above.  However, we not discount the strategy of buyers of crude.  For example, less than a third of the supply offered from the US SPR because buyers did not want to pay the market price.  Similarly, Saudi Arabia claims that its offer to sell additional crude (presumably at market price) has not been taken up.  Sounds to me like buyers are expecting prices to fall in the near term.  At the same time, sellers are flush with cash and therefore see no reason to offer a discount.
The hurricanes are what doomed the demand for heavy-sour.  The US refining industry is the most flexible when it comes to processing heavier crudes.  Roughly 45% of US capacity can handle the heavy sour stuff, and that's in part why US refining companies like Valero have had such great profts.  

In other regions, the percentage is lower.  In China, for example, only 30% of capacity can handle heavy-sours.

So when 25% of US refining goes off-line, that eats up a significant chunck of global capacity for heavy-sour grades.

The bright side is that US customers won't feel as much of a pinch as Asian or European consumers when the spreads continue to widen between sweet-light and heavy-sour.

Forget Iranian uranium deposits, need for electricity, member ship of the International regulatory body and its inspectors in Iran, forget US non-compliance with the same treaty,forget Iranian kerosine and LPG dependance, forget its breathtaking population growth rate, forget its unreliable wheat growing climate. This is all trivia, and simply useful elements to 'construct' a 'background' to whatever action the world's only super power wants. Nothing logically inconsistant with it's interests. Get real. The shape of peak oil will be little influenced by USA action against Iran.

The real story is that USA has and will act to preserve the oil-backed value of the dollar. USA has 'the whip hand', and always will have. The Iranians are powerless in face of their hydrocarbon-carbohydrate Janus faced economy.

If it fails to do so - and Iran will not be allowed to trade oil for Euros on its proposed oil bourse - the dollar is revealed as of rather low value, and a massive and sudden USA recession/depression will result.

That will affect the shape of oil use, but no-one has tried to quantify it, as the severity of demand destruction is very hard to determine in advance.

Long opinion piece t.htm

Most salient part-
"Fiction of resource wars
The USA started to sequester Middle East oil early - 1947 onward.
The USA has a sophisticated techno-military machine in huge military bases in Iraq guarding the USA's Iraqi oil facilities.
USA controls the only major airport in Iraq.
USA controls the ports of Iraq.
USA controls or can control any element of airspace around the gulf.
USA controls the Straits of Hormuz. The Iranian anti-ship missiles along the Iranian coast can be destroyed by air at any time.
USA controls or could control any and every port in the gulf region by almost instant ability to interdict or destroy from above.
The 'resource war' for the gulf has long since been won by the USA."

That is a robust fact. Most people in the world simply have not been awake to it."

Note also Iranian population, wheat dependance, spectres of "food as a weapon" espoused by Earl Butz in - it was 1974, wasn't it? What was happening then...I can't recall....

Regarding a military confrontation with Iran, I think you are making a very dangerous assumption that the vastly superior military might of the US can prevent Iran from causing major havoc with the supply of oil coming from the Persian Gulf.

While it is obvious that the US has control of the air, it is also true that Iran has been increasingly chummy with both Russia and China and very likely has a supply of the latest generation of anti-ship cruise missiles. The Russian 'Sunburn' missile is particularly bad news (Mach 2.1 speed, large warhead, sea-hugging, and capable of last-minute evasive maneuvers). It is a weapons system the US Navy respects and fears.  

The Iranian coast has rugged terrain that makes it easy to hide mobile missile launchers. Even with the protection of Aegis missile cruisers, US carrier battle groups are still vulnerable to a mass anti-ship missile attack. While US air power could knock out missile launch sites, it would be impossible to find and hit all of them before they launch,  and a single hit by a Sunburn on the flight deck of a carrier would so materially degrade its ability to carry out its mission that it would effectively put it out of action. Ditto a supertanker.

Then there are the submarines. Iran has several Russian Kilo class subs. While these don't have the range and endurance of our nuclear subs, neither are they your father's U-boats, and they are quite stealthy and quite suited for medium-range attacks.   I have it on good authority that Navy war games involving subs against carriers, usually result in the carrier coming out on the losing end. That is why carrier battle groups run like rabbits if there are any sub in the area of operation.  If we do attack Iran, I think you will see our carriers leave the Gulf rather than get closer in.

All that needs to happen is for one supertanker (one bound for the US rather than Europe or Japan, of course) to be sunk, and the world oil markets would go nuts.  

We can cause massive damage to Iran through air power alone, but we would never be able to take control of the country unless we go in on the ground, and for obvious reasons, we don't have the capability of doing that as long as we are tied down in Iraq.  Speaking of which, Iran can also make life very unpleasant for us in Iraq in a variety of ways.

While there is no doubt that the US would win a protracted war with Iran, the question is: at what cost and what would we gain by doing that?

Holy cow. What is wrong with you wankers out here? How can you agree on venezuela getting nuclear reactors? The toad of a man, chavez is probably the closest thing the Americas has in likeness to kim jong il. Read the nytimes report this week on how "he sees demons of the US attacking him".

This toad is costing the venezulean economy lots of money. Money that can be spent on infrastructure, economy is instead being spent on propping up his policies and his govt. Repressing his enemies, committing fraud at the ballot box. The middle class is getting squeezed.
He associates with iran, sudan(!), north korea, china just because he wants to be anti-america. That's not the way you run your country. Argentina isn't dumb enough to supply an unbalanced dictator with nuclear tech.

I think he's a social crusader who makes sure Venezuelan oil profits help poor people. That's a point in his favor.
He is a populist.
He has an authoritarian streak.
He is also an economic illiterate.

Those three are independent: having one of these characteristics does necessitate having the others.  

I think the first is good.  But the other two are bad.  And while Venezuela's oil wealth partly insulates the economy from the effects of Chavez's economic idiocy, it reduces the pressure to constrain his authoritarianism.  A mixed bag...

You make him sound like William Jennings Bryant.

I'd say he's more like a Manuel Noreiga with a theme song.

Although the news wires mention that the Soroush and Norouz production platforms were destroyed during the Iran-Iraq war it doesn't mention by who.  Interestingly, it was not Iraq but the U.S. who destroyed it.  

The U.S. media's poor reporting of the Reagan & Bush administrations' overt support for Saddam Hussein during the late 1980's is scandolous.  The chemical attacks on the Iranian and Kurdish civilians were not even covered in any detail until Iraq invaded Kuwait and the U.S. revisited its pro-Saddam policies.  Then we started to hear about Hallabjah.  But I guess it takes a U.S. reversal of policy on Iran before we hear about how Iranian villages were nerve-gased by Saddam:

(I hate to discuss politics here on TOD, but anything related to Persian Gulf is required background for analyzing the near-peak oil world.)

I think US policy towards the Iran/Iraq War was summed up by the quip at the time, "Too bad they both can't lose."

Our interest was in keeping a free market in oil and open navigation of the seas.  That was accomplished.

As to the performance of the major media (US and BBC), to say they've gone downhill shouldn't presume that they were adequate then - they weren't.