Israel Lowers Tone on Iran – Will Oil Prices Fall?

Israeli Prime Minister  Benjamin Netanyahu changed course regarding Iran, saying that the chance of conflict will drop if clear “red lines” concerning Iran’s nuclear program will be drawn.

This statement is a change in rhetoric by the PM, that was busy preparing the public for an Israeli strike on Iran’s nuclear facilities – a move that could result in a much wider conflict. Netanyahu wants the international community to do more, and actually opens the door for Israel to do less.

The new tone comes after a report discussing possible “red lines” that US President  Barack Obama will set for a potential US strike on Iran. Tensions between the US and Israel has risen after the US Chairman of joint chiefs of staff,  Martin Dempsey said that he “doesn’t want to be complicit” in an Israeli strike on Iran – a rather blunt warning for Israel not to move on its own. Earlier, he said that Israel cannot stop Iran’s nuclear program.

Internal Israeli politics also played a role in the Israeli rhetoric during August: the government introduced some unpopular measures such as raising the VAT from 16% to 17% that came hand in hand raising the price of gasoline – both steps took effect on September 1st.

With no new bad news on the agenda for now, perhaps Netanyahu felt more comfortable in starting to remove the Iranian diversion from the Israeli agenda.

If Netanyahu follows through with such statements and if the trigger happy defense minister Ehud Barak also echoes this tone, oil prices could lose ground. Apart from the prospects of QE3 in the US, also the higher tension in the Middle East pushed prices higher.

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