International geopolitical instability is the cause of the hike in oil prices. Of greatest concern to security and stability is the Iranian nuclear program, the Israel-Lebanon conflict and general instability in Africa.

The turbulence in Nigeria has led to concerns about supplies of crude oil. People fear that US refineries in the Gulf Area could be hit in a repeat of Hurricane Katrina. Most precarious of all though, is the situation in Iran, the world's second largest supplier of crude oil. The dispute over nuclear energy will only intensify.

The United Nations Security Council (UNSC) passed a resolution demanding Iran suspends its uranium enrichment program by August 31, or face economic and diplomatic sanctions. The UNSC has put together a package of incentives to encourage Iran to abandon their nuclear program and to compensate them accordingly. These include helping Iran to enter the WTO or other international organizations. According to the UN resolution, Iran should respond promptly to the offer which was agreed on by the United States, Russia, China, France, Britain and Germany.

However, Iran is still taking the hard-line approach. Last Tuesday Iran formally rejected the UN's offer and refused to suspend its nuclear enrichment program. The Iranian army launched ten short-range ballistic missiles in a show of strength and defiance. Following that, Iranian Foreign Ministry spokesman Hamid Reza Asefi told reporters that suspending the uranium enrichment program was not on Iran's agenda and that the UN resolution was not only unacceptable but baseless. He said negotiation is the only way to resolve the dispute. Just a day before Iran's promised response to the UN resolution, Iran's most respected spiritual leader, Ayatollah Ali Khamenei, announced on national television that Iran would not accept the UN resolution and would continue to develop its nuclear program.

Iran's rejection of the UN resolution will push up oil prices and the international market will be under a lot of pressure. Iran has repeatedly threatened to stop exports of oil if the UN imposes sanctions.

Since Iran refused the UN resolution, international oil prices have begun to rebound following last week's slide. The price of oil on the international market was US$72 per barrel on Monday.

There is some good news for the international crude oil market. Prudhoe Bay in Alaska, which has huge reserves of crude oil and natural gas, has resumed production, which should help lower prices. The Israeli-Lebanon ceasefire should also help bring prices down. Oil prices last week fell below US$70 per barrel, the lowest in two months.

This year, oil prices have increased significantly - on the New York Exchange the cost has grown by 18 percent this year. Geopolitical instability is the cause. The Iranian nuclear crisis could lead to a reduction in oil supply of over 2 million barrels per day and political turbulence in Nigeria is creating instability on the market.

Many people are still concentrating on the conflict between Israel and Hezbollah. On July 14, just two days after the outbreak of open hostilities, international oil prices reached a record high - US$78.40 per barrel. It is nearly two weeks now since the ceasefire came into effect. Yet the peace is a very fragile one. Even the UN has admitted that the ceasefire agreement between Israel and Lebanon could easily be broken. This would be another test for the international crude oil market.

By People's Daily Online