If You Thought War Expensive, Wait Until You Pay for Obama's Peace

John Ransom
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Posted: Dec 28, 2011 12:01 AM

Global politics is mostly about resource sharing, like oil. The free flow of oil is the main strategic reason that the US is involved in the Middle East, North Africa and Central Asia. That’s not a bad thing; it’s just a reality.

And until the mean Greenies can make an economy that runs on water, that’s not going to change, no matter how many withdrawals and retreats Obama orders from around the world.

Think the “end” of the Iraq War as announced by Obama is the beginning of peace? Not so fast. In fact, it could be the beginning of bigger and worse war.

“'Peace, peace,' they say, when there is no peace,” writes Jeremiah 6:14. Perhaps Jeremiah was thinking of Obama.

From Agence France Presse:

No oil will be permitted to pass through the key oil transit Strait of Hormuz if the West applies sanctions on Iran's oil exports, Iranian Vice President Mohammad Reza Rahimi warned on Tuesday.

The threat was reported by the state news agency IRNA as Iran conducted navy wargames near the Strait of Hormuz, at the entrance of the oil-rich Gulf.

"If sanctions are adopted against Iranian oil, not a drop of oil will pass through the Strait of Hormuz," Rahimi was quoted as saying.

"We have no desire for hostilities or violence... but the West doesn't want to go back on its plan" to impose sanctions, he said.

"The enemies will only drop their plots when we put them back in their place," he said.    

Because a case in point of war maquerading as peace can be found in Iran’s threat to close down the Strait of Hormuz. Iran is responding to the West’s threat to shut down Iranian oil shipments to get Iran to back off their nuclear weapons program.

According to the Center for Strategic and International Studies, 40 percent of the world’s oil supply, or 17 million barrels per day, travels through the Strait of Hormuz. And while alternate routes can be found to ship oil, the alternate routes can only carry about one-third of the oil that would normally go through the Straits or about 5 million barrels per day. The supply deficit would be about 12 million barrels per day- or two thirds of the entire daily demand by the United States of about 18-19 million barrels.

In that scenario, if spot prices for oil stopped at $200 per barrel, I’d be surprised. Think more like $250 to $300.  

Brent North Sea Crude went from about $95 per barrel in February to a top of about $125 per barrel before settling down to its current spot price of around $108 per barrel, largely on the removal of 1 million barrels of oil supply per day from Libya during its present civil war.

Crude Oil Spot Price - Brent

Chart courtesy http://www.wtrg.com

Now ask yourself what any president of the United States would do if Iran tries to shut down the Strait of Hormuz and take 12 million barrels per day out of supply.

We know from past history what the answer is: He’ll turn it over to the US Navy’s 5th Fleet to keep the Strait open rather than see oil go to $250 per barrel or higher. But this isn’t 1987 or 1990. The stakes are pretty high with instability in the Gulf states and opportunity for Iran in the region, especially after America left Iraq with a power vacuum.  Look for Iran to press its advantage because they have boots on the ground and we do not.

A war in the Strait could easily turn into a war on land in Iraq, Syria, Lebanon and Egypt if not Saudi Arabia, Bahrain and Kuwait with the US on one side and Iran on the other.        

Now let’s do the mathematical alternative and ask ourselves how much we’d have to pay for oil per day, assuming we could get all the oil we needed to keep the economy running, if we decided not to forcibly keep the Strait open.

9 million barrels at $250 per barrel comes to about $2.2 billion per day. If you add a similar increase to domestic prices, you can add another $2 billion per day to the energy costs of the country or about 30 percent of our entire current GDP, which of course would shrink dramatically.

If oil prices rise even a fraction of the scenario that I have sketched out, that won’t just be economic stagflation as we witnessed starting in the spring, that’ll be economic implosion of the worst order. Think of inflation in the mid-to-high teens and unemployment shooting straight up past ten percent nationally.

That's a best-case scenario. It could produce a world-wide Weimar Republic, with hyper-inflation; the last straw of the banking system that we have in place right now, which not coincidently is made mostly of straw. 

Do you feel much safer now that the US doesn’t have 250,000 troops stationed in Iraq, just few hours from the Iranian and Syrian border?

You shouldn’t.   

And if you thought war was expensive, wait until you’re asked to foot the bill for the peace.

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