(The Associated Press) Iranian submarines and warships participate in navy drill in the Sea of Oman on Wednesday. Iran's navy chief warned Wednesday that his country can easily close the strategic Strait of Hormuz at the mouth of the Persian Gulf, the passageway through which a sixth of the world's oil flows. The navy is in the midst of a 10-day drill in international waters near the strategic oil route.

Oil prices predicted to stay above $100 a barrel in 2012

Energy » Forecast driven by Iranian threats, potential for rising energy demand.

the new york times

First Published Dec 29 2011 05:03 pm • Last Updated Dec 29 2011 08:01 pm

The U.S. economy managed to cope this year despite triple-digit prices for barrels of oil. The lessons may come in handy, economists say, because those prices will probably be sticking around.

With Iran threatening to cut off about a fifth of the world’s oil supply by closing the Strait of Hormuz and unrest in Iraq endangering the ability to increase production there, financial analysts say prices for two important oil benchmarks will average from $100 a barrel to $120 a barrel in 2012.

Earlier this week Iran and the United States sharpened their tone over Iran’s vow to close the Strait of Hormuz if Western powers tried to stifle Iran’s petroleum exports. On Thursday, benchmark U.S. crude added 29 cents to end the day at $99.65 per barrel in New York on stronger jobs and housing data in the U.S., which could lead to rising energy demand in 2012.

In a potential threat to supplies, the catalyst for the Iranian threats are new efforts by the United States and the European Union to pressure Iran into ending its nuclear program, which Iran has refused to do despite four rounds of sanctions imposed by the U.N. Security Council.

The Strait of Hormuz, with 2-mile-wide channels for commercial shipping, connects the Gulf of Oman to the Persian Gulf, the principal loading point for oil shipped from Saudi Arabia, the world’s largest oil exporter.

Several investment banks predict that the price of the benchmark crude on the New York exchange will average about $110 next year, while Brent crude oil, which analysts say affects what most of the world pays for oil, will average about $115 a barrel.

"The possibility that there might be a disruption in oil supply at some time in 2012 as Iran retaliates has, I think, permanently embedded a $10 to $20 premium in the price of oil," said Bernard Baumohl, chief global economist at the Economic Outlook Group. "The danger is if oil starts to move toward $130 a barrel, or even higher, depending on whether that confrontation will escalate. Then you’re really talking about the prospect of the U.S. tipping over into recession in addition to Europe, and that the whole global economy will be facing an economic downturn."

The Associated Press contributed to this story.

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