"Oil is Expensive Because Oil is Scarce"

I find it amusing that the neo-classical economists (Michael Lynch and Dan Yergin come to mind) cannot seem to grasp this simple concept.  After all, it is one of their founding precepts.  Ah yes, "no man can understand that which his salary requires he not understand".  

Politics and Oil have gone hand in hand for well over a century - certainly back to the original Anti-Trust regulations of the early 20th century (I wonder how many Americans can define a "Trust" as was understood at the time...).  The first Anti-Trust legislation was directed at the only "Big Oil" we had:  Rockefeller's Standard Oil Co.  

Listening to the pandering of the 3 presidential candidates to the masses on gasoline prices is an ongoing lesson on the state of our capacity to think - approaching "E" on the fuel gauge(s).

But ponder this for a moment:

Iran just called the U.S.'s bluff.  The fact that we are so close to a military confrontation with the country whose shores line the highway that nearly HALF of the world's exported oil travel's through seems to be lost on the financial markets, not to mention the folks running and depending on the myriad supply chains for goods and services in the U.S.

Let us play a little "What If..." shall we?

What if the U.S. means it when it says that Iran will not be permitted to gain nuclear capabilities?  Since the Iranians do not appear to be dissuaded by words, and there is NO shot of a trade embargo against them considering how much the world needs the oil exports...  The only option left is military engagement.  

Iran is not a small country.  Over 65 million people live in the country, and Iran is not a "gray" zone like the U.S., Japan and Western Europe.  The vast majority of the population is young, and Iran has 5 % per more men then women.  In other words, Iran has the "perfect" demographic for a war of attrition, and Iran possesses a vast intelligence and spy network that might wreak havoc on the West's transportation system (just think how favorably an American administration would be viewed by the American people if a couple of passenger jets were brought down by Iranian saboteurs).  But that is all chump change when compared to the really big issue.

Oil tankers are not military vessels. They are owned by for profit corporations, operated by for profit corporations, and insured by for profit corporations.  These tankers are, for the most part, not American.  If the U.S. and Iran engage militarily, these tankers will not operate in the Persian Gulf, and cannot be ordered to do so by an American administration.  Within hours of hostilities, the flow of oil out of the Gulf will cease altogether, and U.S. service stations will be emptied by American drivers attempting to fill up their vehicles (240 million vehicles with an average 1/2 tank trying to go to a full tank = 10 gallons per vehicle, not including trucks and aircraft, 2.4 billion gallons/42 gallons to a barrel = just over 57 million barrels = more than the U.S. holds in "bulk storage", and this does not take hoarding into account.), within several more hours the same might also be true of American grocery stores, certainly no more than a few days.

You see, in an Iranian engagement and with no oil coming out of the Gulf, the export patterns of the unaffected exporters would be significantly disrupted, to say the least, in order to extort as much as possible under the new circumstances.  Within weeks, surreal shortages of oil would hit the U.S., and the effect on trucking and "just in time" inventory management would mean that the National Guard would be involved in the distribution of food and heating oil, with heating oil likely being, for the most part, unavailable.

In the absence of heating fuels, considerable damage would occur to U.S. housing and commercial buildings as pipes freeze and burst, leaving these heating and plumbing systems inoperable even IF fuels should become available.

Lest you think that the U.S. could use electric heat or Natural Gas to substitute for the missing oil:  The 7% or so of American electrical generation coming from Oil would cease to exist, and with the absence of transportation fuels maintenance of equipment and infrastructure would be severely curtailed.  Damage from lightening strikes, storms, tornados, hurricanes, etc... would not be repaired (South Florida and other hurricane vulnerable areas should give that some thought).

Food production, processing and distribution would be SEVERELY affected, as would sanitation (you know, the ability to flush your waste away), healthcare, law enforcement and security, education... you get the idea.

I am no political scientist, but it would seem that the probability of an American/Iranian military showdown over nukes is (much) greater than ZERO, which means all of the issues above have a (much) greater than ZERO probability, too.

By the way, for importing countries that have little to no domestic oil production (Israel, Germany, Japan come to mind) things will be infinitely worse.

Still, all of the above would be far better than a WWIII nuclear exchange initiated in the Persian Gulf.  

Talk about a rock and a hard place.

Yours for a better world,

Mentatt (at) yahoo (d0t) com