Iran’s Oily Revenge on US Drivers, US Troops

They’re baaaack. The Organization of Petroleum Exporting Countries (OPEC) is being chaired by Iran at the moment. And Iran thinks the run-up of the price of crude to over $90 a barrel is just dandy and requires no new OPEC meetings or adjustment of production quotas among members.

Meanwhile, the US is back to using 20 million barrels a day of petroleum, an increase of 4.4 percent over last year this time. The US, the superhog of gas hogs, uses nearly a fourth the world’s daily petroleum production despite having only a twentieth of the world’s population. Increased US demand, along with rapidly growing demand in Asia, helps account for the relatively high petroleum prices. Some analysts think you could see another big run-up in oil prices in 2011 reminiscent of 2008, with gasoline prices going to $4 a gallon by this summer and then ultimately going on up to $5 a gallon.

Depending on how high demand is in Asia, the higher prices could be offset a bit if Saudi Arabia decided to pump, say, an extra million barrels a day for a while. They are among the few producers with that sort of excess capacity. That development seems unlikely, however, until at least the summer. Iraq hopes to add production capacity, but it may be years before it is enough to affect prices in the face of spiking demand. (1.2 billion Indians are thinking seriously about driving automobiles instead of riding their bikes).

Since US sanctions on Iran exempt petroleum sales, Iran’s government is positioned to reap a windfall from the price run-up, perhaps offsetting some of the pain inflicted by restrictions on Iranian banks. President Mahmoud Ahmadinejad must enjoy sticking the West with this winter’s high prices, as a little revenge for the sanctions.

Another petty act of revenge has to do with his blockage of petroleum trucks from entering into Afghanistan. Afghanistan warns that a crisis is brewing as a result of the virtual blockade. Fuel trucks coming up through Karachi via Pakistan to Afghanistan have been targeted by the Taliban, so Iran was the other major import route. Iran seems to suspect that some of the petroleum imports into Afghanistan go to US military vehicles, and this is possibly Tehran’s way of repaying the US for its economic sanctions.

So, to sum up, Iran won’t let OPEC meet to revise production quotas upward. That refusal leads to high gasoline prices for the American consumer this winter and possibly longer. The extra billions in petroleum profits will lard the Iranian government’s coffers, insulating the regime from the worst effects of US and UN sanctions. And, Iran is in a position to bring the pain to Afghanistan, US troops, and NATO by blocking fuel exports across its borders.

Yeah, we’ve got them right where they want us.

32 Responses

  1. (1.2 billion Indians are thinking seriously about driving automobiles instead of riding their bikes)

    Well, the fraction of the population who actually benefitted from the “miracle” growth might…

  2. Production is one thing but hedging is another. The hedge market (US banks and the like) pushed the price to $150 a barrel not so long ago. I’d like to see the figures for their role in the current price hike.

  3. Can you say “Unintended consequences?”

    The DOD has already admitted that in some regions of Afghanistan fuel for US military vechiles cost about $400 a gallon. This should put that above 5 to $600 a gallon. What a great war!

  4. “President Mahmoud Ahmadinejad must enjoy sticking the West with this winter’s high prices, as a little revenge for the sanctions” and “Another petty act of revenge”. Come on Jaun. Give me a break. The US has been wreaking revenge on Iran since the overthrow of their installed puppet.. the Shaw of Iran..in 1979.

    • I agree totally with “Economist”. We would be launching a “preemptive” double Shock and Awe against Iran if that country ever dared to do unto us as we do unto them.

      If Wikileaks ever gets a hold of the top secret stuff, we’ll have better idea of the clandestine damage we are inflicting on Iran, and I doubt that it is petty.

      • Sherm….. Shock and Awe is gone buddy…..no offense but George W could not do shit to Iran let alone Obama. Get Real…What has America really achieved with these sanctions???? First go learn how people survive in Iran then come up with some tangible theory….from my perspective Iran has been toying with the great powers “US and Israel” since day one and funny thing is that all US can do is slap them with Sanctions and dream again dream about the Shock and Awe days.

      • The captured leader of the terrorist organization Jundallah, an organization that’s carried out numerous attacks in Iran, confessed that his group was funded and supported by the US and Israel, who also supplied them with weapons.

        • You just have to laugh when the US and Israel show their mock outrage by whining…”Iran is interfering with Iraq.”

  5. A key factor pushing up oil and commodity prices is the massive Fed money printing currently extant. The media generally minimize this and seek to blame foreigners alone for surging gasoline prices.

    • Fillmorehegan:

      You are absolutely correct. I would add that the price of oil must be considered as part of a “commodities basket” that is inseparable from U.S. monetary policy. One need only consider what has happened to all commodities–oil, industrial and precious metals as well as food–to understand that these loosely track fluctuations in the dollar.

      The dollar matters because of its status as the reserve currency. Oil producers are understandably intent on not permitting the Fed to export inflation into their domestic economies. It should be understood that commodity prices can serve as leading indicators of inflation, as I believe they now do.

      One explanation for why dollar weakness gets sparse treatment outside of the financial press is a function of internal U.S. policy. If the Fed is simply doing what it thinks it must in order to fund the explosion in various entitlements, then is likely to be little complaint from those who also support those entitlements. As you know, U.S debt hit $14 trillion this week.

      Frankly, the reason why OPEC is “back” has less to do with U.S. foreign policy and everything to do with the similarity of circumstances that prompted the original OPEC price binge (1970s)–inflation, or its prospect. While Prof. Cole is absolutely correct–Iran’s various hostile acts constitute, well, hostile acts, the main game–pricing oil to maintain margins against a devaluing currency–is one that would persist no matter who governed Iran.

  6. America needs an enemy.

    Iran’s government denounced the 911 attacks on the US. Candlelit vigils were held in Iran and 60K observed a moment of silence in a sports stadium. Us & Iranian forces liberated Herat, Afghanistan in 2001.

    As the US prepared for the invasion of Afghanistan, Tehran was immensely helpful to Washington, providing key connections to the Taliban’s foes in Afghanistan, the Northern Alliance. The early months of the war saw considerable US-Iranian cooperation, from help with US troop logistics to Iranian offers to conduct search and rescue missions for American pilots.

    Then 2002, W, in a moment of brilliance, called Iran part of the Axis of Evil.

    Still, in March of 2003, Iran appeared willing to put everything on the table (in a letter to Washington) – including being completely open about its nuclear programme, helping to stabilise Iraq, ending its support for Palestinian militant groups and help in disarming Hezbollah – if the US would halt it’s hostile position and admit that Iran was not Evil.

    The US consumes 23 barrels of oil per person each year – China consumes two barrels. If American oil consumption follows American wages, which we are told must compete with China, expect a few less cars on American highways and hypothermia as a rising cause of early mortality.

  7. To say nothing of the fact that the U.S. citizenry has just installed a Congress that will do nothing to reduce our dependence on oil. Many of them are funded by oligarchs, many are anti-science.
    When the earth warms by 10 degrees F which country will be most devastated: Iran or the U.S.?

    • Devastation is in the eye (and stomach) of the beholder. The Big Rich that runs the Teapublican party is not worried by global warming, since it figures it will always have the wealth and power to move itself to more pleasant surroundings.
      To paraphrase that famous bleeding heart: Let them drink saltwater and eat sand.

  8. I seriously doubt that Ahmadinejad is in any position to control world oil prices. This exaggeration of Ahmadinejad’s powers is getting a little ridiculous.

    • when demand is high and supply is not expanding to meet it in the short term, decisions of producing nations are amplified in their effect. There are mathematical formulas for this effect. Please look into it, Cyrus.

      • But Ahmadinejad does not control the demand, and doesn’t really exercise a lot of control over supply either, even if it head OPEC.

        • The chair does have influence over whether an extraordinary session is called, out of season. At such a session Saudi Arabia might well push for an increased quota. It won’t get that chance because AN won’t call the session. In a tight market like today’s, OPEC’s cartel effect is also multiplied. You did not bother to read the articles I linked to.

        • The chair can only temporarily block “extraordinary meetings” of OPEC but Iran’s position that no meeting is required deal with rising prices, according to the FT piece, was shared by others on the OPEC board too. Again, AN simply is a bit player in all of this. He’s not Goldfinger, single-handedly manipulating world commodity proces whilst stroking an evil cat on his lap.

      • Ahmadinejad is going to coerce the rest of OPEC? MAYBE Venezuela will simply move ‘in solidarity’, but Saudi Arabia? Seriously.

        Also, the LAST THING any oil producing country (and Iran IS one of those) OR major end user wants are ‘amplified’ effects. The only sensible thing most oil producing nations want is price stability. The same on the corporate side of the equation. It allows them to rationally plan their cash flows.

        FWIW, that’s what the Neocons complain OPEC does not do. Adequately control the fluctuations in price caused by the leading and lagging (and imaginary intangible) datums used to calculate their oil production.

  9. Incidentally, the “unofficial ban” of Iranian fuel to Afghanistan is actually simply a case of stopping what was rampant smuggling of highly-subsidized Iranian petroleum going to Afghanistan.

  10. A lot of things combine to make a perfect storm for increases in oil prices, not the least more demand from more countries,more demand from more people and so forth.
    Would we be able to get the necessary oil from the ME if we attacked Iran — probably not.
    But crazy people don’t care, the congressperps will be given vouchers for gas just like in WWII.
    Some poeple in power live to feel special, war makes them feel special.

  11. Iran may chair OPEC, but OPEC chairs don’t set quotas or prices. It works by consensus. This article suggests Ahmadinejad has control over things over which he has no control at all. Being pleased with something (higher oil prices) does not mean one has caused it to happen.

  12. “President Mahmoud Ahmadinejad must enjoy sticking the West with this winter’s high prices, as a little revenge for the sanctions.

    Another petty act of revenge has to do with his blockage of petroleum trucks from entering into Afghanistan.”

    These actually look like measured responses to pretty vengeful [unwarranted] sanctions imposed by the US on Iran.

    How else would you have Iran respond Juan?

  13. Wait until the banking geniuses see inflation rise because of the higher oil prices and raise interest rates to cool it down. Iran just may push the world into a second recession and we all will be living at their standard.

  14. Global production data for the last five years indicates that the Saudis probably do NOT have the spare capacity that Dr. Cole and many others assume they do.

    In fact, there is the very real possibility that the Saudi oil fields are PAST their peak production and will now decline in production, no matter what technology is tried to extend the life of the oil fields.

    Global Peak Oil is absolutely guaranteed to happen because just about every square meter of this earth has been investigated for oil, usually by multiple groups, multiple times. There have been no major new discoveries since the 1970s, so there are no “new” oil fields to replace the aging oil fields that are past their peak production.

    The ONLY disagreement among oil experts is the exact date when Global Peak Oil will happen. The majority consensus appears to be about 2020. This is the date China is using for their energy planning – This is when they want to have their entire energy production and usage infrastructure rebuild.

    Iran really does not have to work hard to convince the OPEC countries to restrain production and let prices rise over time, because most OPEC countries are past peak production and they want the price of oil to increase so they can continue to get as much wealth as possible for their lower production.

  15. The good professor fails to mention that albeit the Iranians are turning back fuel trucks to Afghanistan affecting our war effort, which I OBVIOUSLY DO NOT SUPPORT, it saves Iran’s environment, being polluted by the NECESSARY-DUE-TO SANCTIONS use of High Aromatic Gasoline, which does NOT burn clean, for electrical generation use, as recently reported by the NY Times and others.

    This fuel will be used by Iran, for Iranians now… as it should be, until the sanctions based on a known non-existent nuclear weapons program are lifted.

  16. ***Meanwhile, the US is back to using 20 million barrels a day of petroleum***

    Probably not. The EIA — which is generally pretty good says 18.46 mbpd with the difference being speculation.

    link to examiner.com

    That said, we really need to get down to about 8-10mbpd over the next couple of decades. And since we have neither a plan nor anyone seriously working on a plan, I reckon we’re going to achieve energy independence the hard way — stumbling from crisis to crisis — rather than the easy way.

  17. The Fed’s massive money printing and near zero interest rate policies encourage speculation in just about all asset classes — not just stocks.

    The price of a strong stock market under these conditions is surging commodity prices.

    To paraphrase an old song about love and marriage, you can’t have one (strong stock markets) without the other (exploding commodity prices)

    Without QE2, oil probably would be around $70 now instead of $90.

    If the Fed maintains this course, crude will surge well above $100 this year and gasoline will again approach $4 — even without another crisis in the Mideast.

  18. I feel like this cannot be the only explanation for the rise in oil prices, and that there are additional factors at play that I think are more important to address than Iran. I speak, of course, of the oil futures market.

    If the demand this year increases by another 4%, how can that result in a 50% increase in price? What’s probably an even more serious issue affecting the price is the fact that the sovereign wealth funds in many of the other OPEC states invest in companies in the US that then buy back a huge amount of the oil and then resell it at a higher price. This skimming will be responsible for a large chunk of that price increase that you predict.

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