Iran and Europe tensions to keep oil prices high in 2012, Middle East output sustained (page 2 of 2)

It is unclear whether a bite would follow the bark, and if it did, it would inevitably be clumsy.

As of today it is unclear whether Iran will block oil supplies to six European countries, as Tehran has denied such reports. Oil accounts for 85% of Iran's exports and 65% of government revenues, meaning a production cutback cannot be sustained, though threats have been made to pre-emptively cutting European exports, before the proposed July 1 embargo comes into play.

Opec's total spare capacity stands at around 5.76m bpd, or 16.2% of current output. Saudi has the biggest ace up its sleeve with 2.7m bpd spare within its 12m bpd total capacity, despite already boosting production by about one million barrels last year. All the while Iran is taking heat over its nuclear program, this leeway holds extra significance.

Reuters last week reported comments from CIA Director David Petraeus that Saudi appears to be 'ramping up' production. US sanctions on Iran are now 'biting much, much more' in recent weeks, according to the former four-star general. The restrictions were made based on the suspicion that the Islamic Republic is developing nuclear weapons, though Ahmadinejad's regime remains adamant that their nuclear program is for peaceful purposes.

Despite the forecasted increase in oil demand and the various pressures in play for Middle Eastern oil economies, consumption in Europe has actually reduced, for now. The northern-hemisphere's winter typically drives energy demands, but European Q4 consumption began contracting, due mostly to the eurozone debt crisis. Even though demand surged in the previous two quarters, European oil consumption contracted at a rate of 272 thousand bpd, or 1.9% last year, according to Merrill Lynch. Most notably, Greek requirements plummeted 8.9%, with Italy and Spain dipping 4.9% and 7.4% by November. France, Italy and Spain also experienced declines.