Can the U.S. Deal With the Enemy?

The New Year saw crude oil rise over $110 a barrel on Tuesday, as the situation between

and the U.S. fueled the possibility of a disruption to oil supplies from the Middle East. According to

, oil was one of the few assets that performed well in 2011. North Sea Brent, for example, posted an annual gain of 13 percent. The article states that, “The market began the new year strongly on signs of rising demand from emerging economies and supply concerns. ICE Brent crude futures climbed $2.97 to a high of $110.35 a barrel by 1145 GMT on Tuesday, the first day of trading for 2012. U.S. crude futures were up $2.70 at $101.53 a barrel after hitting an intraday high of $101.68.” Military movements on both sides have stirred fears that confrontation between the old enemies could be on the cards, inevitably cutting off oil supplies from the region. Reuters says, “Iran has said it could shut the Strait of Hormuz, through which 40 percent of world oil is shipped, if sanctions were to be imposed on its crude exports. Iranian state news agency IRNA on Tuesday quoted army chief Ataollah Salehi as saying Iran would take action if a U.S. aircraft carrier returned to the Gulf. The Iranian semi-official Fars news agency quoted Salehi as recommending and warning the United States against the return of the carrier, which had left the area because of Iran's naval exercises: "Iran will not repeat its warning.” According to Carsten Fritsch, commodities analyst at Commerzbank in Frankfurt, these moves have “added to the risk premium for oil and other commodities.” "The risk premium is supporting oil prices," Fritsch said. Meanwhile, in

, manufacturing activity expanded at the tail end of 2011, easing fears that the euro crisis would hurt oil demand. According to Reuters, “Victor Shum, oil consultant at Purvin & Gertz, said the direction of the oil market would be determined over the next few months by a balance of economic issues in Europe and the U.S. versus bullish geopolitical factors and the reality of economic growth in major Asian economies. "Oil in 2012 will see a continuing strengthening trend as there are more upside risks," he said, adding that he expected Brent to average $110 and U.S. crude $105 a barrel this year.” Interestingly enough, President Obama signed a law on Saturday imposing tougher financial sanctions that could potentially hurt Tehran's oil exports. The EU will consider a similar move soon. “Iran test-fired what it described as two long-range missiles at the end of a 10-day naval exercise in the Gulf.”