Friday, July 11, 2008

Iran's Oil Push

With Iran dependent on oil to run massive subsidies to its economy, it should be pretty clear why they are rattling sabers at Israel and the US. It's all about oil. Analysts estimate that without the threat of war, oil would be priced at $80 per barrel. That's 40% lower than the current price. With 30% of world's oil passing through the Strait of Hormuz, a war with Iran could blast prices past $200/barrel, maybe even higher.

US and Iranian animosity goes back to the 1980. The desire to get back at Iran has always been there amongst US leaders following the hostage crisis. Iran funds Hezbollah and Hamas as their defense mechanism. Therefore, Iran and Israel are natural enemies. So this creates the never ending cycle. The US funds a massive military presence in the Middle East. Sunni countries like Saudi Arabia buy American weaponry. Oil prices rise enabling Middle East nations to make more and more while increasing costs and inflation for basics like food and fuel.

So why not keep up with the uranium enrichment game, missile tests, military exercises and massive military build-up? Poor countries lose and industrialized nations pay more & while oil economies create dependency between the populace and government subsidies. The same folks run government and bribe their citizens to keep quiet with artificial subsidies like 25 cent/gallon gas.

The US plays a partner to this by continually ratcheting up the pressure to defend its allies and interests. A small, relatively weak country like Iran takes on the dimensions of the old Evil Empire. The cycle continues circle in accelerating bands impacting greater and greater numbers. The world keeps paying more - food prices, iron ore, steel, basic chemicals - while a few countries feed instability in hopes that the fear is felt without having to follow through with their threats.

Why don anything for your people when you can keep growing your income from oil?


Nigel Cordeiro said...

This is a good piece about countries subsidizing oil:

Rajiv Parikh said...

Great post Nigel - it shows how traditional economics has not been able to function. Now let me throw a boomerang at this. What's interesting is the article's slant that the US is doing the right thing by not subsidizing oil prices. So let's see: tax breaks for oil companies, preferential royalties and lease on federal lands, $100+ billion on Iraq and a huge military presence in the Middle East region. Forget the disproportional energy usage of America - let's just take the defense budget. Let's imagine that one third of the US defense budget goes towards protecting the passage for foreign sourced energy. A $600 billion budget breaks down to $2,000 for every man, woman and child in the US. It makes Indonesia, China and India look like small potatoes.

That Gore plan is looking better and better every day.