July 12, 2008

$140 Oil -- Cui Bono?

How much of the current $140 per barrel price of oil is due to Iranian vs. USA / Israel tensions, the fear that the Persian Gulf will get blown up?

Let's just say, for the sake of ease of calculation, that the price of oil would be $100 per barrel in a stress-free environment. So, under that assumption, Iran, which exports 2.5 million barrels per day, makes $100 million dollars per day off squabbling with the U.S. and Israel.

My published articles are archived at iSteve.com -- Steve Sailer

32 comments:

Anonymous said...

Marc Rich

Horatio said...

If you're the sane ruler of an oil exporting nation, it may be to your advantage to play insane occasionally.

Henry Canaday said...

Check out the oil stock figures. In order for worries about Iran to raises the current-consumption price for oil, which is what speculators are trying to predict, and cannot long influence, these worries have to be taking oil off the current-use market by storing it at extraordinary ratios to current use.

Of course, war worries and expectations of higher prices might prompt some suppliers, like Russia, to defer bringing some wells on line, which would otherwise have been producing. But for this to make economic sense, you need a fairly certain expectation of sustained and significant price increases, not worries about a temporary blip. This is because when you delay bringing a well on line, you are delaying the entire 10- to 20-year production profile of the well. An oil well is not like a warehouse of tomatoes, a portion of which you can dump fast or withhold anytime you want. It is a machine that produces over a long time according to physical rules.

A temporary blip in oil prices is what our strategic oil program was designed to, and probably can, handle quite well. And the Administration continued filling these reserves at full speed during most of the run-up in prices.

Darin said...

Well, maybe. But remember: the reason the price goes up is that the markets are accounting for the risk that the supply will be cut off or severely restricted. That means Iran makes $100 mil/day with a certain chance of losing $250 mil/day.

The market knows the game Iran is playing, and I will believe the market's assessment of the probability of things going sideways over Iran's. Therefore, I assume the expected value to Iran of this game is negative. They're gambling that they can keep away from the brink.

Anonymous said...

We'd have to look at contract terms for every oil field in the world, plus speculator profits.

As always, the conspiracist in me says someone is making out big who none of the general public suspects.

tommy shanks said...

Perhaps, but it's a short-sighted strategy. Think "broken-windows fallacy." Sure, Iran's oil revenue would increase, but it jeopardizes its other trade, either through sanctions or just plain fear of dealing with an unstable country. Plus, foreign capital, which is happily flooding China, India, Brazil, etc., would have no interest in coming to Iran.

Caveat: I'm thinking like a rational Western Christian, so I'm sure little of this applies to a tribal Perisan Muslim.

Anonymous said...

PeaK Oil

Anonymous said...

Unless your "insane" statements cause Israel to destroy your oil fields and nuclear industry.

Does anyone else feel that Israel's attitude has gone from threats and warnings to resigned acceptance of the fact that they're going to have to take out Iran between now and the election?

Anonymous said...

I doubt it that's much. There was plenty of squabbling throughout the 90's, when oil prices were very low. If you want to understand the rise in the oil prices, Nick Szabo has the best explanation I've heard - http://unenumerated.blogspot.com/2008/06/commodity-hysteria-overview.html

Anonymous said...

And if you were a sane importing nation, why would you keep poking a stick in the exporters eye?

Chaitanya Sai said...

That is awesome. An alternative title to the post would be: "How to use Photoshop to make a 100 million dollars daily". And it wasn't even a decent shop, just one missile entirely lifted to another part of image!

Anonymous said...

The way the world apparantly really works is a very depressing thing indeed, but its something the thinking need to know.....

Which is why all of you readers need to support Steve Sailer a time or two a year......

Dennis Dale said...

The prospect of oil doubling upward, at a minimum, from $140/bbl appears to be the compelling factor stopping an attack on Iran at this point. Who benefits? We all do.

David Davenport said...

So, under that assumption, Iran, which exports 2.5 million barrels per day, makes $100 million dollars per day off squabbling with the U.S. and Israel.

So what's your bid, Syeve? You want to appease Iran?

If you're the sane ruler of an oil exporting nation, it may be to your advantage to play insane occasionally.

Didn't work for Saddam.

Does Vlad Putin also belong in this category?

Anonymous said...

And for the life of me I can't understand how our President thinks our Arab "allies" will increase production, diluting their profit and decreasing their stock, to make life easier for Americans.

testing99 said...

It's not JUST Iran.

Saudi, Russia, Venezuela also benefit.

But who loses?

The US, and China.

Also, Iran's actions have costs, big ones. Total-ELF pulled out of Iran's Pars oil field development. Likely because ICBMs are a threat to France, given that Iran could offer a nuclear umbrella to any French Muslim group "declaring independence." That's why, probably, Chirac made various nuclear threats in Iran's direction a couple of years ago (noting that France has "capabilities" beyond just using strategic nuclear strikes in the ME with "reconfiguration" of offensive nuclear capacity).

Iran probably doesn't have a force today capable of reaching either France or the US. However, even the Iranians should prove capable of duplicating what the Russians/Soviets did in 1965, i.e. true ICBMs capable of hitting the US and Europe. It's technology, it just takes enough time and money. Nothing magic about it.

THEN the question is, will the US say, risk Iranian nukes to defend, oh say Berlin or Paris or London, as Iran stretches it's power and backs Muslim separatists there? Iranians DO think they are a world power based on Khomeni's "Islamic World Revolution" and that they will supplant America.

Half Sigma said...

Not that much. Higher prices would otherwise soon lead to a surplus of oil which would then cause prices to go back down.

Blame the two billion people in India and China who are buying automobiles for the first time.

airtommy said...

Amazing - every single comment so far acts as if Iran is the one playing games. I guess that's a natural result of Neocons squeezing American conservatives out of the right-wing media.

Back in the real world, Iran tried very hard to make peace with the U.S. in the 1990s, but the Israeli Lobby cut that effort off with the ILSA Act. Since then, Israel and it's Neocon adjuncts have issued a torrent of belligerence toward Iran.

This game that Israel is playing is temporarily increasing Iran's cash flow, but of course that is just wasted on the huge military expenditures that Iran must invest in to defend itself against Israel.

Edward said...

How much oil has Israel? How important is Israel as an oil transit route?

It seems more rational to keep the saber-rattling to Iraq or, better, just the Strait of Hormuz chockepoint for a no-strings-attached price rise.

You might say picking on Israel and America threatens Iran's future viability as an oil producing state, which must add $10s of dollars on top of everything else.

But that's a very high stakes game that only a fool would play.

testing99 said...

No Airtommy, buy a clue.

Clinton apologized to Iran, for various actions including the 1953 coup against Mossadegh, and Iran responded with Khobar Towers. Remember that? Nineteen US Airmen dead?

Iran conducted massive terror campaigns against the US, in the 1980's, even after Reagan conducted various feelers, not limited to the Marine Barracks and Embassy bombings, abduction, torture, and murder (in Tehran) of CIA station chief Buckley, and many other one-off (Navy Diver Robert Stethem) acts. In the 1990's, Iran's Mugniyah (late Head of Hezbollah) met with Zawahari to arrange for AQ to be trained by Hezbollah.

Iran has positioned itself as a global challenger to the US, even outside the Gulf, witness Ahamadinejad's travels to and alliance with, Chavez of Venezuela.

There is no "deal" to be struck. That's middle class thinking, and Iran's people are not middle class people. They rose to power by executing political prisoners, torturing the Embassy hostages, which isn't a middle class way of operating. They are profoundly different from you and I, think and act in different ways, and won't make deals, particularly when they see themselves winning, globally, not just in the Gulf.

Sure, they're gaming the system. Half Sigma is right, China and India are pushing up global demand, but that doesn't mean that short-term spikes caused by Iran's gaming (Saddam did the same thing, pushing for confrontations with the US to jack up the price of oil) are not real. That Iran would engage in this short-term gain, long-term foolishness ought to point out how different they are.

They're like the gang-banger who wants to rub out a rival, regardless of the heat it will draw, because short-term it reduces competition for drug selling. Long term consequences just don't enter into the considerations of non-middle class people.

TGGP said...

A Venezuelan explains the self-interest behind Chavez' saber-rattling here.

David Davenport said...

Another thing: from what I read, Iran is currently exporting about as much oil as it can produce. Why? The Iranian regime needs as well as wants the cash flow. The regime has no other significant source of income, Iran's other exports consisting of carpets and pistaschio nuts.

Note that that what-his-name the Iranian hasn't been threatening to stop exporting oil to the Western world, unless Iran is attacked.

No, I don't favor any first strikes against Iran at this point. Don't accuse me of being a Neocon. Had Bush Jr. not invaded Iraq in 2003, I might be more inclined to attack Iran now. But at this point, I think we have to wait for Iran to start the war. Uncle Sam has sort of shot his wad for first strikes.

...


T-99, you're a military veteran, right? You're not just an armchair commando, are you?

MQ said...

The market knows the game Iran is playing,

Iran isn't playing any game, so far as I can see. The U.S. and Israel are constantly threatening them and they are responding rationally to those threats. The escalation has clearly come from our side.

As several people point out, it would be irrational for Iran to try to increase tensions just to affect the price of oil.

MQ said...

And Testing99's bill of particulars against Iran above is hogwash. There is no proof that Iran was behind Khobar Towers -- it is pure speculation. As are any Iran-Al Qaida links. Al-Qaida is the one most likely behind the Khobar Towers, as makes sense since U.S. troops in Saudi Arabia was their major cause celebre during the 90s. And there's a mountain of evidence that Al-Qaida and Iran are enemies.

Iran apparently did fund operations in Lebanon when the U.S. was in Lebanon, but this was part of their general funding of Shi'ite militias in Lebanon and the response of those militias to the presence of U.S. troops in the country. Iran's support of their co-religionists against Israeli incursions in Lebanon is none of our business.

Iran and the U.S. share many interests, and reduced tensions and even some strategic cooperation would benefit both countries. Those who constantly try to whip up jingoistic U.S. sentiments against Iran are harming U.S. security and helping the cause of Iranian hard-liners. Neocon types like Testing99 are more concerned with the fantasy wargames they run in their head than understanding the real world.

testing99 said...

Ahem.

"WASHINGTON (AP) — The Iranian government is partly to blame for a 1996 terrorist attack that killed 19 Americans in Saudi Arabia, a federal judge ruled Friday.

The ruling by U.S. District Judge Royce Lamberth allows the families of the victims of the Khobar Towers bombing to seek $254 million in compensation from the conservative Islamic regime in Tehran.

Though intelligence officials have suspected a link between the Tehran government and the Saudi wing of Hezbollah, which the FBI has accused of carrying out the bombing, Friday's ruling is the first time a branch of the U.S. government has officially blamed Iran for the deaths of Americans in the bombings.

"This court takes note of plaintiffs' courage and steadfastness in pursuing this litigation and their efforts to take action to deter more tragic suffering of innocent Americans at the hands of terrorists," Lamberth wrote. "Their efforts are to be commended."

Lamberth relied heavily on testimony by former FBI Director Louis Freeh, who investigated the bombings.

Two Iranian government security agencies and senior members of the Iranian government itself provided funding, training and logistical help to terrorists who carried out the attack on a dormitory that housed U.S. Air Force pilots and staff in Saudi Arabia, Freeh testified.

Lamberth had previously ruled that a survivor of the blast could seek compensation from Iran but Friday's ruling is the first time a court has said Iran was to blame for the deaths. The lawsuit was brought by the families of 17 of the 19 people killed in the attack."

Link here

Stupid is never attractive MQ.

Iran is and always will be our enemy, since Khomeni. Anyone who has read Bowden's "Guests of the Ayatollah" understands what Iran's leadership wants: total expulsion of the US from the Gulf and the Med, and the "destruction" of the "Corrupt" US society. That this is a fantasy akin to Tojo's fantasy of ruling the Pacific does not make it any less dangerous.

America DOES have enemies and nuclear proliferation means that yes, America or some other Western nation will be hit, sooner or later. MQ thinks like Obama that sitting down with dangerous men who kill as a matter of course and drinking mint tea solves all the problems. It doesn't.

There is no need to panic, but ultimately either Iran or the US will control the Gulf. I'd rather have the US, MQ obviously hates America so that he'd have Iran. Shrug. Some people just hate America and/or hold lunatic ideas about Kumbayah. When a nation holds a conference on "A world without Israel and America" and races towards nukes, I have concerns. Since nukes are the "equalizer" and as with North Korea, or Pakistan, prevent the US from doing something essential to it's interests.

When Bill Clinton shrugged and allowed Pakistan to go nuclear, the result was a nuclear umbrella for bin Laden and a safe haven. Pakistan's Foreign Minister said bin Laden hunts in it's territory by the US would be forbidden, on pain of war. What happens if a nuke goes off and say, NYC disappears? [Or part of it.]

A nuclear Iran could credibly claim it was Pakistan, helping bin Laden. Pakistan could credibly claim it was Iran. Either might be right. Politically, the US could not respond and we'd have another attack, eventually, because we'd be weak and nukes are the great equalizer if lots of people have them. Anyone who's spent time in South Central can draw the analogy between guns and nukes.

There is no "international law" going to arrest Rafsanjani for Khobar Towers, much less Ahmadinejad, or Lil Kim (who's kidnapped lots of Japanese citizens, who can do nothing about it). Just as in South Central, the only effective law is who has the biggest posse and most guns.

Ask anyone in South Central how peace and love has worked out as a means of public safety.

testing99 said...

I'll add that Steve is quite correct.

Short term gaming even though it produces long-term losses is very common.

Saudi Arabia did it with the OPEC boycott in 74, and later reduced production to jack up prices. Saddam did it all the time, to get short term gains. Just fire missiles he knew would not hit US warplanes to jack up the price when he needed some "really quick money."

Lost in this of course is the other player, CHINA.

China absolutely must have cheap oil. Cheap world-wide oil. Their economy, and the fortunes of the Politburo families, and political stability, are built on shipping lots of cheap stuff with low-skill labor to the US and Europe, in oil-fueled freighters. That in turn depends on customers in those nations having enough cash to buy that stuff.

China right now lacks a real, blue-water navy capable of say, sailing into the Gulf if the US exited and simply seizing the oil fields of everyone concerned. However China is active in Central Asia, it shares a very small and short border with Afghanistan, which has major issues with supply for our troops through Pakistan. China has a substantial presence in Pakistan (whom it also borders) with many engineering firms active in government projects. China has been an ally of Pakistan (against mutual foe India) since the 1960's ... but that could change.

China's goals are to lower the price world-wide of oil. It will probably push on the US to refrain from reacting to Iran's provocations designed to game the system short-term, but is limited in what it can do since it must fear provoking a nationalist backlash and risk losing access to the US market. And pressure on the US will only work on Iranian gaming, it won't produce more world-wide oil which is vital.

Britons are already being told to ration food like it was 1944. Imagine food riots in China? THAT would be truly frightening to the Chinese leadership. Anything is possible if that happens.

Anonymous said...

Maybe we can encourage the Chinese to invade Iran through Afghanistan. Tell them that if they knock off the Ayatollahs, they can have both countries.

Long shot, of course, but it would be a win-win. The Chinese government could use some minor terrorist attack among its Muslim minority in "East Turkistan" as a pretext -- say it was sponsored by the Iranians. Then we could clear a path through Afghanistan for them, and let them send 500,000 men into Iran.

- Fred

MQ said...

From a 2007 interview with William Perry, SecDef during the Khobar Towers period:

_________________
MCWETHY: Well, there was a seventh challenge that was beginning to show itself at that point, and that was the attack on Khobar Towers in Saudi Arabia, where 19 American servicemen were killed. Terrorism was beginning to strike at the heart of the U.S. military, in one of these early incidents. Now, as a journalist, I was very aware that the government was picking up bits and pieces of evidence that indicated Iran's fingerprints were all over this. Can you describe for us the debate that went on in the administration at that time over how to respond or not to respond, when the evidence was so clearly aimed at Iran and the thinking within your administration at that point?

PERRY: Yeah. In fact, I'll make two different comments about that. The first is that, in retrospect, I believe that the Khobar Tower bombing was probably masterminded by Osama bin Laden. I can't be sure of that, but in retrospect, that's what I believe. At the time, he was not a suspect. At the time all of the -- all of our examinations, all of the evidence was pointing to Iran. I think, in retrospect, it was probably home-grown, instead of from Iran.

The FBI had a very intense investigation in-country, working with the Saudi intelligence. The best view I could get from them at the time was they thought it was Iran, but they couldn't prove it, and the Saudis, if they knew it or believed it was Iran, they were trying to discourage us from thinking that, because they feared what action we would take. They rightly feared it. In fact, I had a contingency plan for a strike on Iran, if it had been if it had been clearly established. But it was never clearly established, and so we never did that.

_________________

The Lamberth decision (which reversed a correct lower court decision that evidence was lacking to blame Iran in this case) was based entirely on ex-FBI head Louis Freeh's say-so from the old 1990s investigation, which never even suspected Al-Qaeda.

The Saudis themselves have now officially stated that Al-Qaeda, and not Iran, was behind Khobar Towers. The 9/11 commission also showed evidence that Al-Qaeda was behind this. The bombing itself was committed by a dozen Saudi Sunnis and one Lebanese. It all makes perfect geopolitical sense, which Iran's involvement does not.

Stupidity is never attractive, testing99.

And I definitely love America. Unlike guys like you, for whom America only exists as a stalking horse for various geopolitical fantasies that require sacrificing American lives and treasure, I love and want to preserve this country as an actually existing place where I live. I don't need any idiot fantasies about conquering the world. And when real enemies come along -- like Al-Qaeda -- I don't want to distract attention from them by making up new and unncessary enemies.

Saint Middens said...

mq,

Well said. If McCain (a neocon posing as a conservative) gets elected and starts new wars at the behest of Israel, it will be a disaster for conservatives. Our good name will be besmirched and we'll be blamed for the ensuing disaster.

Cyd the Kid said...

If McCain (a neocon posing as a conservative) gets elected and starts new wars at the behest of Israel, it will be a disaster for conservatives. Our good name will be besmirched and we'll be blamed for the ensuing disaster.

I think this will be a major benefit to conservatives. Real conservatives, that is. Idiot McCain will hopefully be the final nail in the Republican party's coffin as they have long ago became the party of wannabe panderers. Maybe true conservative whites will finally realize that a Republican vote is no different than a Democrat vote and neither party has their interests in mind.

none of the above said...

Just as an aside: I'm honestly pretty ignorant of military and occupation issues, but if we attack Iran, is there any reason to think we can stay on the good side of of the Shia majority in Iraq?

Sideways said...

The difference in quality of posts between this thread and the foreign language thread is incredible.