There’s an old saying that goes, “Because the nail was lost, the shoe was lost. Because the shoe was lost, the horse was lost. Because the horse was lost, the rider was lost. Because the rider was lost, the battle was lost, and because the battle was lost, the war was lost.”
This kind of daisy-chain connection between the nail and the war seems to be what’s on the horizon for oil prices.
With Iran already the subject of the United States’ evil eye, we’ve just begun another series of sanctions against them for continuing to develop nuclear programs. And because we’re sanctioning them, they’re vowing to block a vital oil trade route in the Strait of Hormuz. One-sixth of the world’s oil production passes through the Strait.
In theory, it doesn’t directly affect America, as we don’t get much oil from that particular route anyway, but the bigger picture is that whenever there’s any kind of unrest in the oil business, we pay for it at the pump.
The BP spill… oil prices spiked. Snowmageddon… oil prices spiked. Kim Kardashian gets a divorce? You guessed it.
Okay, maybe we can strike that last one. But there does seem to be enough that make the price of gas in America always worth talking about.
Pull up to the gas station on Monday, for example, and you’ll see gas at $3.30 a gallon. But by Tuesday, it might have popped up to $3.50.
Why the $0.20 hike? Nobody can provide a reasonable answer. “Umm, well, see… today is the anniversary of the introduction of Kleenex and oil forecasters expect a surge in the amount of people running out to buy commemorative Kleenex boxes. More people on the roads, you see…”
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With Iran, if blocking the Strait of Hormuz affected just the United States, it could be an effective strategy. But because of the chain reaction, the resulting surge in oil prices would hurt everyone, not just America.
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The biggest markets that receive the oil are China, Japan and India. If the Hormuz gets blocked and these markets take a hit, the United States will suffer, too. That’s despite the fact that America has its own pipeline through the Red Sea that the Iranians don’t control.
The tricky part here is that China has invested in these Iranian oil fields. If the Iranians were to block it off, we have battleships in the region ready to fight. If it comes to that.
But since we’re not in line for the oil, and China is, we could face a disagreement over how to resolve the issue. China might try the diplomatic route; America might not.
“If the Iranians chose to use their modest navy and anti-ship missiles to attack allied forces, they would see a probable swift devastation of their naval capability. We would take out their frigates.”
So says David L. Goldwyn, former State Department Coordinator for International Energy Affairs, in The New York Times.
Threatening people that are threatening other people isn’t always the best policy. In one barroom fight after another, threats escalate further until there’s blood on the floor, the band has stopped playing and the cops are called.
Meanwhile, everyone stands around awkwardly, while nothing’s been accomplished. So with the Iran situation, while hostile talk about oil blockades isn’t to be taken lightly, neither is the threat of possible retaliation.
Where’s the cool bartender who can step in and diffuse this fight?
Wall Street Daily Research