$200 oil?
June 25, 2008 – 10:29 amIf Israel bombs Iran, $200 oil is a distinct possibility. Both look more likely given recent developments. Consider:
- Israel is making oddly accommodating overtures to erstwhile enemies Syria and Hamas. Hamas has been firing rockets non-stop from Gaza into Southern Israel since they drove out Fatah a year ago. Syria had begun constructing a nuclear reactor before the Israelis bombed it last September. Yet in the last two weeks, Israel set a truce with Hamas, revealed secret negotiations with Syria, and even urged the Lebanese to open peace talks. Are the Israelis reaching out to their secondary enemies so that they can concentrate on Iran, their primary strategic foe?
- Israel has dialed up its rhetoric too. On June 6th, Israeli cabinet minister and former army chief of staff Shaul Mofaz called an attack on Iranian nuclear sites “unavoidable.” [That was the day oil jumped $10 a barrel, incidentally.]
- And most notably, the Israeli Air Force recently rehearsed a potential attack on Iran. The intent was for the World, and the Iranians, to notice.
And that may be all Israel is doing here: reminding the Iranians, and the World, that they are prepared to act if sanctions fail to arrest Iran’s nuclear program. Others believe Israeli action is a foregone conclusion.
Forthwith some predictions in the event Israel attacks…….(plus a nifty chart for those of you who read on)
(Here’s a downloadable copy of the slide above. Should be more legible than the jpeg file above.)
The first consequence of an Israeli (or American) attack would be Iranian retaliation.
Iran’s first option would be to block the Strait of Hormuz, the 21-mile wide shipping lane at the mouth of the Persian Gulf through which 20% of the world’s oil supply flows every day. They could also attack oil production facilities in Kuwait, Saudi Arabia and the UAE. They could cut off their own oil supplies. Last, they could leverage their highly developed terrorist network (Hamas, Hezbollah, et al) to attack oil installations on their behalf.
The above I’m taking from a fantastic paper published this month by Simon Henderson that outlines Iran’s retaliatory options. [Most interesting are all the reasons Iran may NOT want to disrupt oil supplies, primarily because its economy relies heavily on oil exports and gasoline imports.]
So of course the most obvious economic effect of an attack would be (much) higher oil prices. That would drive inflation ever higher, especially in developing nations that spend a greater amount of national income on energy.
But while the jump in oil prices may be significant, it may also be temporary. In the first two months of the Gulf War, oil prices doubled. And yet four months later they had fallen back to pre-war levels. Indeed, if you look at the chart above, you can see that some oil supply shocks haven’t impacted prices. [Here is a spreadsheet with the raw data.] Never before has there been a supply disruption of the magnitude Iran is threatening, however, which is why I’d bet oil prices leap substantially. My point is simply that any price spike may be short-lived.
To the extent they could, other Middle Eastern nations would have strong incentives to vastly increase supply. First of all, they’re as anxious as Israel about the Iranians acquiring nukes. Indicative of this fact was the total silence from ALL Arab countries following the Israeli bombing of the Syrian reactor. Syria is aligned with Iran, remember. Many are quietly hoping Israel takes out Iranian nuclear facilities.
Second of all, if oil gets too expensive, we may shake a meaningful chunk of our oil addiction. The Arabs certainly don’t want that to happen.
It is perhaps worth noting that over the weekend the Saudis said they would pump more oil, which seemed an odd and sudden reversal. Only a month ago, they rejected George Bush’s in-person plea for more supply.
Would an attack actually disrupt Iran’s nuclear capabilities? Yes, probably. Though the Iranians learned from the Israeli attack on Iraq’s Osirak reactor in 1981—burying much of their nuclear program below reinforced concrete that is harder to bomb—the Israelis have vastly improved their military capabilities, acquiring GPS-guided bunker buster bombs that can penetrate reinforced concrete. A fantastic paper by Whitney Raas and Austin Long from International Security describing Israel’s strategic options is available here.
Should the Israelis attack? That is more complicated. The total success of the Osirak raid is encouraging at first glance. And yet Saddam eventually redoubled his nuclear efforts and would likely have acquired nukes had it not been for the IAEA. At best, an Israeli raid could severely retard Iran’s efforts; Iran could rebuild.
………………..
Other interesting links:
- Oil chokepoints
- Oil price chronology charted against major world events. Click on the chart at the top for a great downloadable Excel file with the raw data
- Annual energy data….production, consumption, prices for all types of energy products
19 Responses to “$200 oil?”
interesting post rolfe. You have pulled together some very useful data and put it into a helpful narrative. Thanks.
By nick gogerty on Jun 25, 2008
Great analysis…
I AM WRITING ON EXACTLY THE SAME ISSUE….my prediction vis a vis oil has come true upto now. $65/barrel to $140/barrel…my prediction also was $200/barrel, made in January of this year.
I’ll keep reading u’r blog
By D.D.Roy on Jun 25, 2008
Good. Now somebody in Washington will have a foreign power to blame for the next economic depression ! Excellent news. That way nobody will have to take the blane for the second Great Depression. Excellent idea Israel. It’s a really fantastic way to be loved by the rest of the world. Sorry. I see 300$ oil and a lot of body bags for US and UK troops in Bagdad and Bassorah.
By Marc Authier on Jun 25, 2008
Good stuff here except for the baloney about Syria building a nuclear reactor.
By wootendw on Jun 25, 2008
Marc—Israel isn’t the one driving up oil prices in this scenario. Iran is, by retaliating against neutral parties.
Wootendw–”baloney?” how so? That Syria was in the early stages of constructing a small nuclear reactor was one of the firmer intelligence conclusions of the last year. Confirmed by Arab silence in the wake of Israel’s bombing run.
By RolfeWinkler on Jun 25, 2008
Syria has a small nuclear reactor for research which it operates under international safeguards. As Syria is a member of the NPT, there is nothing secret or military about it. The bombing undertaken by the IAF last September was not of this reactor. Nor was it a nuclear site at all.
By wootendw on Jun 25, 2008
What source are you citing that tells you the site Israel bombed in Syria wasn’t a nuclear site?
By RolfeWinkler on Jun 25, 2008
Very interesting except I’m not sure if I would take it as gospel considering the person who created the chart called it Hurricane Katrine. I always thought it was Katrina.
Now regarding your first bullet point:
Israel is reaching out to it’s enemies with an olive branch in one hand and a weapon in another. Wouldn’t you if you were threatened with annihalation?
Second bullet point:
Just because he said that doesn’t mean the whole of the cabinet feels that way.
Third point:
Israel did practice and in fact flew the same distance as if they were going to the Iranian nuclear plant. But Iran is looking for this by creating a plant capable of creating weapons grade plutonium and how their rhetoric is always has been. I wouldn’t feel one bit upset if Israel did something. The US will back them up…
By Hmmm on Jun 25, 2008
No one in reason can believe that an intelligent man like Bashar Assad would risk giving the US and/or Israel an excuse for annihilating his country. Had the site really been nuclear, there would have been celebrations in Israel as there were with Bushehr. Instead, it took nearly two weeks for the Israelis to agree on a story. The operation was likely done by rogue elements of the IAF intent on sabotaging peace talks.
By wootendw on Jun 25, 2008
Correction: I said ‘Bushehr’ when I mean to say ‘Osirak ‘.
By wootendw on Jun 25, 2008
It’s a pattern in American history and world history with politicians. I noticed the same pattern in other countries. Blame the “foreign” element or foreigners in far away places, for problems that usually are the fault, are were created by the ruling classses. I am still surprised that nobody has blamed Ben Laden fot the subprime fiasco.
By Marc Authier on Jun 25, 2008
yeah, yeah. those damn rockets from gaza and the syrian nuke site. poor israelis. maybe we should supply them with 30 billion in new military aid over the next 10 years. oh, we already did that.
By K. Bustard on Jun 25, 2008
Ok, so Sadam threatened to sell oil in other than dollar denominations, and he was taken out.
Iran has recently done the same thing.
Maybe the Saudi’s sell their oil in US dollars in exchange for us protecting them. What happens if China offers to protect them?
By TornadoMom on Jun 25, 2008
You cannot expect the rest of the world financing your deficits and your way of living eternally. It’s as simple as that.
China, India, Russia, and many countries are starting to think about themselves. It was nice while it lasted. Now it’s payback time, not just for the USA but for almost all the G7 members. It’s not just about oil.
Ok Oil will buy time. But seriously, you cannot imagine China or Russia, letting the US seizing control of the whole region. Don’t forget. Iran in 4 times bigger and it’s a real country, with a strong culture than remembers the rotten british colonial rule there.
Irak was never a real country. It’s still completely dysfunctionnal. And yes Saddam Hussein was a element of stability. I know I know, not a nice guy. But who is ? Cheney ? Rumsfeld ? Putin ? Olmert ?
By Marc Authier on Jun 27, 2008
Option market says PLUS 40% real soon. But hey who knows ? 300$ would be a nice number. Bye bye GM, Ford and Chrysler.
By Marc Authier on Jul 1, 2008
Rolfe,
On the Truthdig site, Scott Ritter had some doubts about the Syrian building being a nuclear site as well.
Lack of graphite in the atmosphere was one of the most compelling of his arguments–reactors are either graphite or water cooled, and if it was based on the North Korean reactor it would have been graphite–and, according to Ritter, after the explosion there would have been tons of it on the ground, in the atmosphere, everywhere.
Given the false info Israel is prone to and the fabricated WMD Iraq was supposed to have had (completely debunked by Ritter prior to the war) I’m wary of anything smacking of a drumbeat to war.
Might want to take a gander at this as well:
http://www.normanfinkelstein.com/article.php?pg=11&ar=1589
By Lisa on Jul 5, 2008
Lisa….I watched the YouTube video of Ritter’s comments to which you refer. His argument isn’t that Syria wasn’t building a reactor. He seems to think it was a reactor. He takes issue with the characterization of the reactor as being nearly operational. In that case you would have had the graphite signature.
In any case, there are many other odd circumstances surrounding the attack that Ritter doesn’t address.
Why was the rest of the Arab world utterly silent in its wake? Israel bombed an Arab nation and not a word from ANY Arab country in protest?
But nevermind the lack of protest from other Arabs, why was their no response from the Syrians until three weeks afterward? If nothing nefarious was afoot, wouldn’t they have protested quickly and vociferously?
When they did say something publicly, first they said the Israelis bombed an Arab League academic institution, which the Arab league itself immediately denied. Bashar quickly beat a retreat from that excuse and himself referred to the site as “military” in nature without going into any detail.
I also thought it odd that only the North Koreans registered their displeasure with the attack publicly.
It seems clear that the two countries were working together on a reactor. What is less clear is what Syria’s intention for the reactor was. Israel probably didn’t want to chance it, considering Syria’s sponsorship of Hamas and Hezbollah, two of the most dangerous terrorist organizations in the region. Or perhaps they were sending a message to Iran….
By RolfeWinkler on Jul 6, 2008
Nice post!
Could I link to it.
I was looking for a page like this.
By Tom on Jul 9, 2008