The War Premium On Oil.(Point of View)(Viewpoint essay)

Speculators may be assuming that Israel and the United States will 'take out' Iranian nuclear facilities.

There are two questions being asked around the global water cooler these days, and no one seems to have a very good answer for them. First, why does the price of oil keep rising, even if the world economy is slowing down and the Saudis appear to be willing to raise production? Second, why do so many analysts and governments think that the United States or Israel, or both, will attempt to destroy or set back the Iranian nuclear program sometime before George W. Bush's departure from the White House early next year? While there is a early infinite number of answers available to both of these questions, this writer likes one: it lies in the link between the two questions.

Obviously there is no single explanation for the astonishing and persistent rise in oil prices, recently hitting more than $140 per barrel. But one explanation may well be that energy traders and even real consumers, including refiners, companies and governments, are betting on an American-Israeli intervention against Iran in the near future, and logically believing that such an act would drive oil prices sky-high. While the American, Israeli and increasingly European attitude of turning up pressure, sanctions and threats against Tehran may well be the best way to both avoid military action and ensure that Iran does not acquire nuclear weapons, it has the unintended consequence that some people may actually believe it. Speculators and others may be acting on the assumption that Washington and its Israeli ally will proceed to "take out" Iranian nuclear facilities, because that is exactly what Bush and his allies are implying will happen if the Ahmadinejad regime does not comply with U.N. resolutions.

What would happen if such an intervention were to occur? To begin with, Iran would almost certainly suspend most or all of its oil sales abroad in retaliation; that would remove a couple of million barrels from the current worldwide supply of roughly 85 million barrels per day. Then--and this is crucial--Tehran's increasingly close ally, Hugo Chavez in Caracas, would in all likelihood at least stop sales to the United States and possibly declare a general suspension of sales. There go another 1.5 million barrels per day, though PDVSA, the Venezuelan state oil company, claims it is exporting substantially more today (showing, by the way, that in today's global economy, it is not that easy to know exactly how much each producer is placing on the world market). Finally, it would not be impossible for other exporters, out of tongue-in-cheek solidarity with Iran (applauding the American-Israeli move in private while giving lip service to international law in public), to remove an ...