Obama, GOP won’t Tell Americans that Iran Sanctions drive Gas Prices

President Barack Obama campaigned on energy issues on Wednesday, visiting a handful of oil wellheads on Federal land in New Mexico and a solar installation in Boulder City, Nevada.

The subtext of this Obama campaign is public unhappiness with the price of gasoline and the hypocritical attacks on him over this issue by his Republican opponents. The fact is that there is only one thing Obama could have done to bring down oil prices, and that would have been to veto the National Defense Authorization Act until Congress took back out the provisions for crippling sanctions on Iran. Republicans back these sanctions to the hilt, which is why it is dishonest of them to attack Obama on high gas prices.

US politicians won’t say it. But Christine Lagarde, the head of the International Monetary Fund, has made it clear that the Israeli-US campaign against Iran, into which they have dragooned Europe, could put up petroleum prices by as much as 30% and endanger the world economic recovery. Likewise, India has lashed out at the US Israel lobbies for what it sees as a smear campaign and unrealistic pressure on Delhi to cut off imports of petroleum from Iran.

Back in the US, you can’t mention the elephant in the room or else the Neocons will accuse you of foaming at the mouth (they are the ones who are actually frothing).

President Obama said while at the solar site:

“Now you’d think, given this extraordinary sight, given the fact that this is creating jobs, generating power, helping to keep our environment clean, making us more competitive globally. You’d think that everybody would be supportive of solar power. And yet, if some politicians have their way, there won’t be any more public investment in solar energy. One member of Congress, who shall remain unnamed, called these jobs ‘phony.’ Called them ‘phony jobs.’ Think about that mindset, that attitude, that says because something is new it must not be real. You know if these guys were around when Columbus set sail, they’d be charter members of the flat earth society.”

The object of the attack, Rep. John Fleming, R-La., replied on Twitter: “POTUS uses flat earth society line again. Witty, but no help for folks paying $4/gal thanks to his failed energy policy. #phonygreenjobs ”

Obama lost that one. No one is interested in how modern the solar site looks, they are interested in the price at the pump. He has to do a better job of explaining why petroleum prices are high. If he would admit that it is in some part because of a US struggle with Iran, he might even be able to appeal to the patriotism of the public.

The price of gasoline depends on 1) petroleum supply, 2) refinery capacity (the ability of the world to turn raw crude into gasoline, kerosene, etc.), 3) global demand, and 4) investor confidence, which affects futures prices.

The Iran crisis is affecting demand for Iranian petroleum. Because of the boycott, Iran has been encouraged to produce less, so it is pumping about 300,000 barrels a day fewer now than it typically did last year on average. But over-all global demand is actually quite high, if not historically high, so the reduced demand for Iranian petroleum is artificial. In the context of high over-all demand, reduced Iranian supply contributes to high prices.

Likewise, crippling sanctions, which in some cases have the practical effect of a blockade of the country’s civilian economy, raise the real possibility of a military conflict. (The US has disarticulated Iran’s banks from the world banking system, making it difficult for e.g. Ukraine to export wheat to Iran because of payment difficulties. When you’re taking bread out of children’s mouths, those aren’t just ‘sanctions,’ they are effectively a blockade; and blockades often lead to war.) Iran made this point with naval exercises at the mouth of the Straits of Hormuz, through which about 20% of the world’s petroleum is shipped. Likewise, the saber rattling of Likud Prime Minister Binyamin Netanyahu of Israel has contributed to investor jitteriness. Republican presidential candidates, who have more or less been promising us that they would go to war with Iran if elected, have further made investors nervous, so that it is the height of hypocrisy for them to blame Obama for rising prices.

So although it is true that some 20% of the price run-up is speculation, and although many blame the speculators, these are actually mostly futures traders who are quite reasonably worried about the supply of petroleum 6 months out if their are hostilities with Iran. Iran tensions drive the speculation.

Supply is also constrained by political problems in South Sudan, Syria and Nigeria, as well as by increased use of automobiles in countries such as Mexico, reducing their exports over time.

Saudi Arabia is promising to flood the market by ramping up its production, increasing the supply of petroleum. But industry insiders doubt that the Saudis could produce signficantly more petroleum than they already do, at least for very long. Obama has probably fallen for these unrealistic Saudi pledges. (For one thing, they can’t control factors like increased world demand or the subtraction of supplies as a result of political instability).

The Iran issue is unrelated to increased global demand, which derives from continued strong Asian growth. Despite a slight slowdown in China’s perpetually heated economy and the ruling Communist Party’s increase in the price of gasoline, demand for petroleum imports there will likely grow 6% this year to 5.3 million barrels a day. (China is the second largest importer after the United States). A recent dip in China’s imports from Iran is temporary and has to do with a dispute over pricing.

India imports on the order of 3 million barrels a day now, some 10% of it from Iran, and it is hard to see where it will get enough kerosene / paraffin for its needs, much less gasoline/ petrol, if it gives up the 300,000 barrels a day it gets from Iran. (India says it will not kowtow to unilateral US sanctions, but will only follow the UN Security Council ones). Given India’s projected 7% economic growth rate in the next fiscal year, its demand for petroleum will likely be strong– though the high price could actually shave points off the country’s growth and so reduce demand.

South Korea, another significant oil importer, expects to grow at 3.3 percent in the coming year, which will also put pressure on petroleum prices.

Petroleum is mostly used for transportation; a bit for purposes like cooking.

That is why Obama’s visit to the solar plant was irrelevant. Solar energy generates electricity, used for heating, air conditioning, running factories, powering buildings and households, etc. Unless Americans drove a large fleet of electric cars, you could make all the electricity you liked from solar installations and it would not have much effect on the price of petroleum. And, at the slow rate the US is pursuing solar energy and electric vehicles, my grandchildren are the ones likely to see the day when it matters for petroleum prices. Don’t get me wrong. It is highly desirable that we move in this direction quickly, to forestall climate change and to gain energy independence. It is just that US corporations have kept the American public barefoot and spoonfed with propaganda on these issues and so the public is led by the nose to demand what is bad for them and what they can’t have (cheap petroleum).

As for his visit to the oil fields on federal land in New Mexico, they are also irrelevant. The US uses on the order of 18.5 million barrels a day of petroleum and other liquid hydrocarbons. It imports about 8.7 million of that. Although US production of oil is up slightly, and of distillates as well, there is no prospect that the US could produce 8.7 million barrels a day of petroleum and other liquid fuels in any relevant time frame, and probably it can’t do it at all; certainly it could not do it very long. And nobody is preventing drilling in most of the country, just offshore and in nature preserves, where the total likely production wouldn’t exceed 500,000 barrels a day in the lower 48, even if it was all drilled, with all the pollution and spoliation of nature that would ensue.

(The story you’ve heard about the US becoming a net exporter of refined petroleum products for the first time in years is irrelevant. That just means it is refining petroleum and selling the gasoline e.g. abroad. The US is still the world’s biggest net importer of petroleum, bringing in much more than does China.)

But Republican and some Democratic senators and representatives, and the presidential candidates who are in the back pocket of Big Oil are lying to the US public and saying that we can drill our way out of the problem. And they are trying to blame Obama, under whom US petroleum production has actually increased for the first time in years, for the so-called failure to drill.

That we’re paying a premium for the conflict in Iran is being dishonestly ignored. Obama needs to explain this fact to the people, or he is putting his second term in jeopardy.

17 Responses

  1. Of course, the elephant is in the room: Gas price/Israel’s Iran agenda. Tragic: The no-cons have embraced S. Hersh’s “Samson Option”.

  2. Juan,

    Haven’t you noticed?! Well almost nobody else has either! World crude oil production has been stagnant for the last six years. Total liquid fuels (including natural gas liquids, condensates and tar sands have only increased production about 600,000 barrels a day over six years. (BP annual statistical revue of energy) This despite a frantic search for oil with record numbers of drilling rigs. Why do you think we are now going to the ends of the earth, and into ultra deep water in search of oil. This oil will not be cheap. The majority of older wells are in declining production. The North Slope of Alaska produced 2 million barrels a day at its peak in the 80s and today is a little over 600K bpd. This is being repeated the world over. There may be many factors that affect world oil prices, but, if we are truly at “Peak Oil”, that is the world peak of oil production, and there is a growing body of evidence that we are, or are very close, then we have only just begun to see the upward spiral of oil prices. And, if we truly are at peak oil, prices are the least of our worries!

  3. Obama doesn’t so much need to explain about the effect of the Iran sanctions on the price of gas, he needs to stop the Iran sanctions, and not merely for the purpose of bringing down the price of gas. But of course you know that, and the space limitations didn’t permit more than the gas price issue.

    But how exactly, does Obama increase his popularity if he tells the public that it is his sanctions that are raising the price of gas if he doesn’t then drop those sanctions? If he does drop the sanctions he is “weak on national security” and/or “anti-Semetic.” (I can’t believe I just said that and I hope you know what I mean by it.) He is pretty much between a rock and a hard place there.

    And yes, standing at a solar plant and yammering about the “flat earth society” with respect to gas prices is pretty pathetic.

  4. “But Republican and some Democratic senators and representatives, and the presidential candidates who are in the back pocket of Big Oil are lying to the US public and saying that we can drill our way out of the problem.”

    That statement goes a long way towards explaining why ‘Obama, GOP won’t tell Americans that Iran Sanctions drive Gas Prices’.” The rest of the story is that Obama is also in the pocket of Big Oil, and he and Congress are the Washington dogs wagged by the AIPAC and Israeli right wing tails.

    And, today in Cushing, Oklahoma, Obama is in the first stage of reversing his delay on the Keystone XL pipeline that recently had the hearts of naive environmentalists and Democrats fluttering.

  5. So, thinking a bit deeper, how does this bode for the ability of the People to responsibly govern themselves (eg, democracy)?

    Second point is how the longer a lie goes on, the tougher and more painful it is to get back in-line with reality; the bigger the consequences of the lie as it begins to compound on itself, leading you (or a country) into ever and greater feats of irrationality and sometimes outright stupidity. Think Iraq, which is now ever bit as likely to be repeated with Iran if you follow this logic, and it strikes me that cutting off ones nose to spite their face is consistent with recent history, all rationality aside, and notwithstanding the sanity of Obama (versus the shallowness of Bush). More insanity seems inevitable due to how our system can be and is being manipulated by the relentlessness of a certain group of patient and influential people. How things will come to be is unknown and unknowable, but we are past what is rational.

  6. PS: I’ve never been clear on precisely how the US has “dragooned” Europe into backing sanctions on Iran. It is clear how the ball got rolling, but where did it get the momentum to steamroll Europe to this extent?

    Sure, sanctions and pressure can be justified somewhat due to insecurity and provocative games/statements from Iran, but to be taken to this extent doesn’t square with their interests as far as I’ve been (perhaps poorly) informed. “Authorities” on one of the in-depth public affairs shows opined that Chinese and Russian failure to cooperate was due to a blend of stupidity, economic selfishness and spitefulness (taking the opportunity to just stick it to the US). Whatever else may be going on, these guys are not stupid.

    I must be missing something here, since the obvious drivers in the US don’t account for everything we’re seeing.

    • The US is a 14.5 trillion economy and its Treasury Department is threatening third party sanctions on companies and countries that deal with Iran. It is a sufficient threat to scare giants like Shell and Total. The Treasury Department sanctions are mandated by Congress, which is impelled by the Christian Zionists and AIPAC to wage economic war on Iran. Voila.

      • OK, its clear the power being wielded over the US congress and its executive, as well as big 3rd parties. And that the People in the US are oblivious enough not to connect the dots is understood: but what about the EU? When sanctions don’t make much of a difference to them personally, EU support is a chip to be bargained, but when they have to suffer for US policies I’d expect resistance or less than the support I do see. I’m still curious.

  7. Bill H., it is worse than that. If the Secret Service is infiltrated and something happen to the President or his family, we would experience a civic catastrophe in our country.
    I am sure the President is well aware of it and wishes to avoid it not only for personal reasons but for the sake of the country. He’s also aware that the journalist that suggested his demises remains free! Therefore the President has to keep on “compromising.”

  8. What Obama is not telling you is that the sanctions aren’t about Iran’s enrichment program. They are about the fact that Iran has dared to sell oil in currencies other than the petrodollar — and now it’s even threatening to exchange oil for gold. India is one of the two willing oil-for-gold customers, which is why it keeps getting bribed and threatened. China is the other customer, which is why we’re hearing Cold War II rhetoric.

  9. Three cheers to Juan Cole. To TV pundits, why not put some real acadmic econmists on TV to replace the evasive uninformed ideologues

  10. Subtext: American government–both sides of the aisle–and big oil are steering America’s SUV to the cliff. All for the sake of profits, power, and a mythical ally called Israel. Iran–nuclear weaponized or not– doesn’t bother me. The Republicans, Democrats, and Israel bother me a lot because none of them offer any viable future.

    The resulting current presidential campaign is a farce. Media carries every sneeze of the hottest (or most self destructive) Republican candidate of the moment, but you could fit stories about US voter alarm,. disgust and dissatisfaction with the process into a teaspoon. It does no good to shout a warning as the cliff finally becomes visible to the most studiously ingorant. At that point everyone is just along for the ride.

    Your post is spot on Professor Cole.

  11. Pushing to increase US oil production is even more futile than Juan indicates in this article. The oil companies hope to find more oil that they can obtain at below world market prices not to pass on savings to US consumers but to pocket the difference themselves. The only decline in prices that we might see would be from the tiny amount that increased US production would hold down world market prices.

    I know it’s just logical contradiction #207, but the current Republicans would be the first to defend the oil companies’ right to sell to us at world market prices no matter what subsidies they got in extracting these public resources, so more drilling wouldn’t lower prices even in their fantasy land.

  12. I’m fed up with all the balant lies and spin that the Obama, politicians, candidates, news media including PBS, bloggers and other continue to present to the public.

    America needs a Department of Truth that would fine and jail those found guilty of lies, out of context misleading information and confusing spin. The computer age makes it very easy to confirm the truth of information.

    Obama is also not presenting the truths.

    He is not worthy of the Presidency.

  13. I find the paradox of the counterfeit American standard of living to be impossible to escape. It works like this:

    Based on past achievements, ordinary Americans would have expected their wages to keep increaasing several % per year, and instead they’ve been flat for the last 30 years. So they live in a rage of denied expectations, which they offset by wiping out their savings and going into debt that they will never make enough money to pay off.

    However, based on what Americans actually do for a living now, they are grossly overpaid! I mean, what would a person get for doing that exact same thing in Brazil or South Africa, much less Pakistan? We don’t make anything real. We pimp goods made overseas for crazy markups, which are delivered straight to the CEOs and shareholders of the outsourced American brands. We sell medical insurance that is full of fraudulent promises. Worst of all, we sell each other fake investments. Some of these jobs are so harmful that they actually have negative value.

    So a vast chasm has opened up between what Americans think they are worth, and what the rest of humanity thinks they are worth. And when Americans hear talk about famine overseas, or global warming, or Peak Oil, or the devastation that our financial deregulation wreaked on the world, they fear at some level that the world is finally coming to exact brutal redistributive justice. Which is why we increasingly sound like plantation owners in the year 1859, confronting the encroaching world with hostile glare and crazy talk.

  14. RE: “Christine Lagarde, the head of the International Monetary Fund, has made it clear that the Israeli-US campaign against Iran, into which they have dragooned Europe, could put up petroleum prices by as much as 30%”

    AND NOTE: Israel’s Nuclear Triggers, by Grant Smith, Antiwar.com, 3/20/12

    (excerpt) FBI files detailing Israel’s stealth acquisition of U.S. nuclear triggers were declassified and released on Dec. 28, 2011. The FBI’s secret Portland and Los Angeles inter-office communications were originally scheduled for release in the year 2036. Their availability today reveals how Israel’s elite spy networks acquire U.S. nuclear technologies while evading criminal and diplomatic consequences.
    A kryton is a gas-filled tube used as a high-speed switch. U.S. State Department munitions licenses are needed to export krytons because they can be used as triggers for nuclear weapons. California-based MILCO International Inc. shipped 15 orders totaling 800 krytons through an intermediary to the Israeli Ministry of Defense between 1979 and 1983. MILCO obtained the krytons from EG&G Inc. After the U.S. government rejected several requests for kryton export licenses to Israel, Arnon Milchan’s Heli Trading Company brokered the transactions with MILCO. Milchan is an Israeli movie producer who became successful in Hollywood for such movies as Brazil, JFK, and Pretty Woman.
    The FBI file reveals that after the illicit kryton exports were discovered, a U.S. attorney tried to flip MILCO President Richard Kelly Smyth to implicate Milchan during intense plea bargaining. The gambit failed, and in May 1984 Smyth was indicted on 30 counts of smuggling and making false statements. Smyth and his wife promptly fled to Israel and remained at large until captured in Malaga, Spain, in July 2001 after Richard Smyth applied for Social Security benefits. INTERPOL arrested Smyth and extradited him to the United States, where he pleaded guilty to violating the U.S. Arms Export Control Act. In November 2001, Smyth was sentenced to 40 years in prison and fined $20,000, though he was freed within four years because of his advancing age. . .

    ENTIRE ARTICLE – link to original.antiwar.com

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