Saturday, August 05, 2006

Oil Up ... and up and ...

Even as instaliblity and war ravage the Middle East and with the US still pursuing sanctions or military strikes against Iran should that country prove to be less than cooperative on the nuclear issue, Iranian officials have declared that, even in the event of US military strikes, Iranian crude will still flow. Which is an interesting position for the Iranians to take because they really have no idea what the Pentagon will target. Putatively, the nuclear facilities will be hit, which implies that oil infrastructure won't be. I'm less than convinced that this will be the case. They may be presuming that the Americans would not be so foolish as to cut Iranian oil and natural gas supplies to world markets but given the state of the White House these days, foolishness hardly seems "off the table." However, political considerations will play a large part in any such decision, as the American public will certainly not be pleased with the price of gasoline that will result from bombing Iranian oil facilities. Natural gas supplies, though, could be targeted without unduly affecting American markets. And such strikes would have the purposeful benefit of setting back the Iranian-Pakistan-India pipeline project.

Nonetheless, Iranian offcials and most others watching the oil futures market, expect oil to hit $100/bbl this winter. In an interesting side note, Iranians are still negotiating, and currently haggling a price, with Pakistan and India in the proposed 2600 km natural gas pipeline deal, a pipeline the White House has been adamantly opposed to since it was first announced. But what I'm sure would be labelled "accidental" military strikes may not be viewed as necessary by the White House in order to stall the pipeline deal. It appears that the Iranians are doing a good job of that themselves, reneging on previous agreements, among other problems.

However, $100/bbl oil appears to be in our very near future. It could be a year or more before that price begins to make itself known in US gasoline prices, but when it does, look out. Endless war and dead American soldiers remain only midly distasteful to much of America, but when gasoline hits $5 a gallon, that is when an ugly displeasure with Washington will make itself known. It might do the Republicans well to actually let the Dems have Congress this fall. In this way, they can blame expensive gas on a Democrat-led Capitol and thereby push the Dems into finally submitting to ANWR drilling and everywhere else imaginable, despite such sources having little or no ability to mitigate world oil prices.

The reality that Americans refuse to face, though, is that while Washington can choose to do something about the wars currently engaged, the price of oil in a "free market" is something they can do very little about. But then, we're supposed to love the free market. Right?


Post a Comment

<< Home