Over on the main site, Ralph Reiland explains how soaring gas prices will silence the buzz around President Obama’s payroll tax holiday.
That’s true… and this is part of the reason why the Obama administration is increasingly concerned with the possibility of economic crisis, provoked by Iran, heading into election season. Mounting tensions with the Islamic Republic are already driving gas prices toward $4 a gallon at the pump. Taken in context of the delicate economic recovery, a global shortfall of 500,000 barrels a day — if Iran is excluded from the market — or some 10 million barrels per day — if Iran shuts down the Strait of Hormuz — spells a potential energy calamity for Obama’s White House.
All this, as Israel’s prime minister, Benjamin Netanyahu, prepares to visit Washington next week, to press Obama on military intervention against Iran.
As we’ve learned, senior Israeli officials believe IDF must take preventive action by summertime to effectively disrupt Iran’s nuclear program. For its part, the White House is apprehensive that an Israeli attack will spike oil prices, and enmesh the United States in a regional crisis months before the presidential election.
Four days before Bibi’s arrival, Air Force Chief of Staff, General Norton Schwartz, told reporters that the Joint Chiefs have briefed the president on various contingency options to hit Iran’s nuclear sites, in solemn partnership with our Israeli allies.
Ultimately, this crisis becomes catastrophe based on a single variable: whether or not Iran decides to close the Strait of Hormuz. Such a move would immediately cut off 10 million of the 17 million barrels of tanker-borne oil that pass through this critical choke point each day. Although pipelines that circumvent the Strait could carry the additional 7 million gallons, Iran’s deployment of littoral warfare capabilities (including mines, antiship missiles, and surface to air missile) could potentially double the price per barrel of Brent crude in the international market. Regardless of where America’s getting her oil, in a global commodities market, nothing “that happens in the Gulf, stays in the Gulf” and we’d feel the pain along with the rest of the world. Imagine the impact in Europe — not to mention debt-laden Greece, which gets 14% of her oil from her friends in Tehran…
Such action would also constitute an act of war — and would undoubtedly prompt an appropriate response, while imposing severe economic and military costs on both the United States and Iran. But before we “cry havoc,” it’s important to recognize that closing the Strait would amount to financial suicide for an Iranian economy staggered by sanctions — and disinclined to alienate itself from vital consumers such as India and China.
As such, it’s unlikely that a rapid Israeli attack would prompt a prolonged closure of the Strait of Hormuz, but even the briefest lock-out of the international petroleum market could trigger a full-fledged American response. Not to mention a swift and severe escalation of hostilities.
Whether or not Israel decides a preventive strike is in its own best interest, or Iran elects to shutter the Strait, this uncertainty will continue to cost us at the pump. We’ll wait to hear what Netanyahu and Obama have to say this coming week at the annual AIPAC convention, but, in the meantime, might I suggest filling ‘er up before the market spooks again?