It is easy to blame Trump. It’s easy to blame Iran. It’s easy to blame the oil companies. But a deeper dive into the current price of oil is a replay of the supply chain issues of the Covid Outbreak Nonsense (Con.) But oil prices since the early 1060s are basically controlled by two factors- the actual cost of oil and the geopolitics of oil. The real dovetail of geopolitics lies between the Russo-Ukrainian War and the massive attack on Israel by Hamas.
This current price shock (if it really is a shock as I would argue it isn’t such a shock) originated in the attack upon Israel by Hamas in October of 2023. Hamas is supported mainly by Iran and countries who bitterly oppose Israel. And some of the Arabs are reluctant to support Hamas because they don’t like Iran. In fact, Iran openly brags that they are not Arab, but are Persians. Only Islam ties them together. Meanwhile, Russia supports Iran and does so rather openly and assumes Iran will support Hezbollah, the Houthis, and Hamas. In fact, late reports suggest Iran is going to respond to US and Israeli pressure by mobilizing the three terrorist groups into a coordinated attack upon not only the US and Israeli people but any Arab country who will not support them.
Most of the Arab countries would rather say out of the fray but the bully of the Middle East is already attacking counties who don’t support them openly. China for its part, simply enjoys poking the dog with a stick through the fence by buying oil from Iran and Russia both. So, how does all of this dovetail into an increase in oil prices?
First, there is plenty of oil in the world. Just as there was plenty of toilet paper before the Covid shutdowns. The property was the supply chain was forced to shut down and getting that chain moving again proved to be a big problem. Slashing interest rates only resulted in the rapid inflation of the economy, invited huge amounts of fraud in government programs, and basically was a disaster on the economy. So it is with oil.
Next, consider oil markets as they were in 2022, 18 months before the attack upon Israel by Hamas. Russia was supplying most of Europe with natural gas and perhaps just as importantly, diesel fuel. Diesel fuel, jet fuel and kerosene are middle distillates that are widely used outside the US. European drivers drive a far higher percentage of diesel cars that does the US. Further, US environmental standards has made diesel a poor choice for automotive use. The ultra low-sulfur fuel requires DEF- diesel exhaust fluid- to keep the pollution control system working. Urea, basically cow pee, keeps diesel from clogging up catalytic system that formerly were not required on diesels and still aren’t in Europe.
So, with sanctions upon Russia, Russia simply tuned off the taps and let Europe freeze in the dark as well as stop driving cars. There was no ready alternative. Therefore, it was critical to import refined and crude oils from the Middle East and Africa, the next closest source able to replace Russian oil and gas. Russia was hurt too but determined to pursue their course of forcing Ukraine into a subservient position under Russian control. It hasn’t worked but that’s a story for others to tell. OPEC has oil but Iran was under sanction as well, Libya was not back to 100% pre-Ghaddafi production levels. Meanwhile, China was absorbing all the crude they could corner from Asia and African sources as well as ignoring sanctions upon Venezuela.
When Biden eased sanctions upon Iran they took advantage of it to supply the Three Hs (Hamas, Hezbollah, and Houthis) in an effort continue their goal of overthrowing Israel and institution a new Holocaust upon the Jews. When Trump put sanctions back on to pressure Iran from producing missiles and drones to Russia in their war, then the pressure ramped up.
Meanwhile, the effort to reroute oil into Europe was problematic. Almost a quarter of diesel production in the US is routed to Europe. Supply and demand rules. Europe is willing to pay more and they cannot get it from the Middle East easily and they cannot get it from Russia. The crunch was on so Iran applied pressure in the one place that they could – the Straits of Hormuz. That is why the US got involved in the war that is basically between Iran and its state sponsored terrorist cells in the form of the Houthis as well as sending their own Navy on a suicide mission. And the more Iranian oil taken off the market by bombing their refineries and the more oil slowed from passing through the Straits of Hormuz the Saudis, Kuwaiti, and other middle eastern oil producers cannot supply rest of the world. It is not a problem of no oil. It is the problem of transporting both crude and refined product to the major markets of China, India, the US and importantly, Europe.
Russia is encouraging it as they see it keeps pressure upon NATO to not intervene in Ukraine under the assumption that Russian will eventually prevail in that country. (To be Continued)