The ratcheting up of rhetoric by Israeli officials focused on Iranian nuclear ambitions has culminated in recent weeks with an Israeli military official describing the threat to Israel as greater than the threat they faced during the run up to the Six day War, and the Aug 6 op-ed piece in the WSJ by Michael Oren, Israeli Ambassador to the US, stating that the window for effective action against Iran is narrowing quickly. The importance of Amb Oren’s comments is that an Israeli official is placing a time frame for Israeli/Western response.

True believers in an imminent Israeli move can be found in the crude oil markets. Since the beginning of June and in spite of little economic data suggesting a significant rebound in global economies, crude oil prices have seen a steady march to higher prices. This price action however, is only a glimmer of the real fear. More telling has been the near doubling of the Brent/WTI spread from $11 in early June to nearly $20 most recently. Fear of a closure or disruption in flow of oil through the Straits of Hormuz is the center of the market’s fear and such a disruption will more directly impact Brent oil prices.

Traders are bidding up price of Brent oil and adding to inventory levels in expectation of supply disruptions. What is unknown, of course, and adds to market nervousness is how long a disruption will last and the collateral damage to oil production from a war with Iran.

The global crude oil market participants, all of whom have much at stake, probably have access to better and more timely information then western intelligence agencies, and are convinced a disruption is at hand. Clearly the Brent/WTI spread should be viewed as an early warning signal of danger ahead.