The Iranian Oil Weapon
Posted by Stuart Staniford on January 16, 2006 - 1:05pm
Topic: Economics/Finance
Tags: hubbert peak, iran, iraq, oil prices, oil shock, peak oil [list all tags]
I'd like to take a more careful look at exactly what kind of oil weapon President Ahmadinejad is packing. In particular, let's go over the seventies oil shocks and use them to fashion a rough guesstimate of the likely impact of a cutoff in Iranian oil supplies now.
To give you the punchline up front, I'm going to argue that, with large (50%) uncertainties, a complete loss of Iranian production for an extended period might be expected to roughly double oil prices and cause massive economic impacts, while a halving of oil production due to sanctions, or retaliation to sanctions, might be expected to produce a 30-40% increase in price and significant economic impacts. If Iran is left alone, prices are quite likely to drift up somewhat anyway, but not by this much.
To help you get an overall feel for the history, the graph at right shows world oil production broken out into non-OPEC, OPEC excluding Iraq and Iran, and Iraq and Iran together (the last two having been big factors in many of the oil supply problems in recent decades). The graph runs from 1965 through 2004. The source of the data is the BP Statistical Review of World Energy. You can click the picture to get a more readable version in a separate window.
- The Arab Oil Embargo, which started on October 17th 1973, and ran through March 17th 1974.
- The effects of the Iranian revolution of 1979, and the Iraq-Iran war which began in September 1980. Sometimes these are viewed as separate oil shocks, but the effects are hard to disentangle.
- The Gulf War which began with the Iraqi invasion of Kuwait in August 1990.
Let's now focus in for a moment on the oil production of Iraq and Iran specifically:
Annual oil production from Iraq and Iran 1965-2004. Source: BP Statistical Review of World Energy. Click to enlarge.
You can see that during 1974, while Iraq reduced production in line with their Arab brethren, Iran, under the Shah, kept right on growing production. In 1979, with the revolution, Iranian production starts to drop, but is partially offset by increased Iraqi production. However, in 1980 both have dropped to about half the 1978 level, and by 1981 we are down to a little over two million barrels/day between the two parties to the conflict - versus around 8 million barrels/day in the years 1973-1978. Production has never reached that peak level again. Iranian production slowly recovered through the eighties and early nineties to reach a level of about four million barrels/day in recent years. Iraqi production also increased during the eighties, but then fell to very little following the Gulf War. With the advent of the Oil for Food program in 1996, Iraqi production began to increase, until the most recent war began in 2003.
It's worth taking a closer look at that as a case study on the effects of an invasion/insurgency on oil production:
Monthly oil production by Iraq since January 2002. The US/British invasion began on March 20th, 2003. Source: Energy Information Agency. November and December 2005 are estimates from news reports. Click to enlarge.
As you can see, production takes a dive with the March invasion and reached a nadir of almost nothing in April. From there, it slowly comes back over the course of the next six-ninth months, and then is choppy since. It has never reached the January 2003 level again, and was particularly bad at the end of 2005. This is despite the fact that Iraq has enormous undeveloped reserves, which the country has never brought into production due to onoing political instability. Clearly the recent invasion has not improved that situation, but rather made it worse, at least on the evidence to date.
We now turn to looking at the effects of the oil shocks on price. The next figure shows average annual price of light sweet crude over time in 2004 $US (note that prices on any given day can differ quite a bit up or down from the average price over the year).
Average price for light sweet crude during each year 1965-2004. Expressed in 2004 US dollars. Source: BP Statistical Review of World Energy. Click to enlarge.
As you can see, the shocks had a dramatic effect. The 73-74 shock caused prices to roughly quadruple from $10 to $40, where it then stayed. In 1979, prices doubled again. What we now need to do is get a more quantitative sense of how much production changed in order to produce those price changes. That should help us to estimate how bad an Iranian oil shock would be now.
Economists like to look at the relationship of price to the quantity demanded through the lens of a concept called the elasticity. The idea is that if the price changes by X%, and then we find people using Y% less, then the elasticity is -Y/X. The minus sign captures the inverse relationship - when price goes up - a positive change in price - we use less, a negative change in quantity. For very essential commodities such as oil, the elasticity is very small (it takes a lot of X to get a small amount of Y, so the ratio Y/X is small). Inessential or easily substitutable goods can have a much larger elasticity.
In general, the idea that there is a fixed number, the elasticity, that controls the response of price and quantity should only be viewed as a very rough approximation. One thing that makes it better however, is to take account of the fact that oil usage tends to respond to changes in the size of the economy much more strongly than changes in the price (in econo-speak, the income elasticity is much larger than the price elasticity). So it makes more sense to look at how much the quantity used changed in response to price, relative to how much it would have changed otherwise. To do this, the next graph is helpful. It shows the percentage change from one year to the next in how much oil is used worldwide (ie the percentage changes in the production graph up top).
Year-on-year percentage change in global oil production. Source: BP Statistical Review of World Energy. Click to enlarge.
As you can see, in the late sixties and early seventies, oil production grew at roughly 8% a year (give or take a percentage point). So when the shock hit (it shows up in the 1974 point, which has a 0% growth over 1973) it causes about an 8% reduction relative to that expected. So, a 300% change in price is associated with an 8% change in production. -8/300 = -0.027 - let's call it -0.03. That's pretty inelastic, all right. However, these shocks seem to cause long-lasting changes in the growth of supply and demand. In the late seventies, production growth was only running at 4% give or take. So when in 1980, it takes a dive to -4%, that is also an 8% change. However, this was associated with only a 100% change in price: -8/100 = -0.08. You can see this elasticity concept is a bit fuzzy as different shocks give different answers.
After that, there again seems to be a fairly permanent change in the nature of oil demand. It runs negative for several years (as major efforts were made to make the economy more oil efficient). And when it does start growing again in the late 1980s, it now only runs around 2% a year growth. So when the 1990 invasion of Kuwait comes, it only causes a 2% change in production (from 2% growth to zero). So that's elasticity of -2/15 or -0.13.
So which is it -0.03, -0.08, or -0.13? Part of the pattern seems to be that the more severe the shock, the more inelastic demand appears to be in response. People are somewhat able to make modest changes in their oil usage, but find it very difficult to make sudden radical changes. It may also be that the absolute price matters as well as the relative change - when prices are lower, it takes a larger relative change to get a response. (As an aside, the straight line in the growth rate graph is a fit to the data, and the fact that it has just crossed the x-axis - zero percent growth - is one of the pieces of evidence for a near-term peaking in oil production).
Now in recent years, oil production growth has been volatile with economic swings, but the trend over the last decade is running at around 3% annually. However, in 2005, we seem to have started to run into significant difficulty expanding production much further (which has pushed prices up). Forecasts vary from people who think 2006 is unlikely to grow any over 2005 (near-term peak) to more optimistic forecasts of 2% growth or so. Let's take an intermediate case, and assume that the rest of production grows by 1% (about 0.8mbpd), and then consider Iranian possibilities in the background of that.
A harsh scenario is that Iranian production ceases altogether for an extended period of time, as war rages, let's say. That's a loss of about 5% of world oil production (at the 2004 rate of 4mbpd or so). Thus world production would be dropping by 4% (allowing for 1% growth in the other 95% of production), when the recent trend has been for around 3% relative growth. Thus the combination of complete loss of Iranian oil production on top of an already stressed supply situation would represent about a 7% supply change compared to the recent trend. That's comparable to the 8% shocks in 1973-74 and 1979-80. That might be expected to roughly double oil prices from their current level There's a large uncertainty associated with the uncertain elasticity, but my guess is that the 1979-1980 oil shock represents the best model for the situation in that it came on already heightened prices.
A milder scenario might involve a deliberate reduction in oil exports by Iran as retaliation for sanctions. A halving of their production would represent about a 5% oil shock relative to trend. That might give somewhere in the region of a 30-40% increase in oil prices. No doubt enough to make significant economic trouble for the world.
All of these estimates should be viewed as 50% uncertain, given the variation in response to past oil shocks, and our lack of knowledge of how today's economy might respond differently than the rather different world economy of the seventies and early eighties.
Finally, if the US were to attack Iran, there is some possibility of a supershock. Since Iran has considerable influence over Shiite factions in Iraq, and also can attack tankers from Saudia Arabia and Kuwait in the Gulf, there is an outside possibility of a very large - more like 10-15% -- oil shock as exports from all around the Gulf were affected. That would be an economic disaster.
Indeed an argument can be made that the long-term effects that the oil shocks appear to have in reducing growth in oil production and consumption also translate into an effect in reducing economic growth generally. This next diptych shows the same oil production growth 1965-2004 graph we showed before (at left). But it also shows world GDP growth for the second half of the last century on the right. It's surprisingly hard to obtain a long annual sequence for world GDP, but Brad deLong cites the numbers every five years from 1950-2000. From that I constructed average growth rates over each five year span, which is plotted at the end of the span.
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Left panel. Year-on-year percentage change in global oil production 1965-2004. Source: BP Statistical Review of World Energy. Click to enlarge. Right panel - world annual GDP growth 1950-2000 averaged over five year intervals. Source: Brad deLong. Click to enlarge.
As you can see, in the happy years of the 1950s-1960s, economic growth was very high - running around 5-6%. For the period containing the first oil shock, it drops to only around 4.5%, and then drops again to a little over 3.5% following the second oil shock. Since then, it has recovered but only to about 4% annually, where it has been since.
Now whether the correlation in the way these growth rates evolve is indicative of causation is not certain. However, the possibility should certainly be considered when we start to consider doing things that might affect Iranian oil supply.
should we not focus on Iranian oil exports, vs total Iranian production, in an estimate of the effect on the world economy?
Iran is using a significant portion of its production for domestic use (something on the order of 35-40%).
The same cynic might regard a deindustrialization of Iran by way of Western aerial bombardment and subsequent seizure of the oil-rich regions (which are concentrated in Khuzestan bordering on Iraq) as a valid policy goal in its own right, as it would keep those Iranians from burning their own oil.
a) our Western leaders heed the advice about stopping the digging when you´re already in a hole, and
b) Allah does a quick trick to replace Mr. Ahmadinejad with a less doom-driven personality.
It´s one of history´s nice ironies that the first non-clerical president of Iran would also seem to be the first outright messianic apocalyptic among them - which severely perturbs calculations of mutually assured destruction that would have wokred quite well with the Rafsanjani kleptocracy.
Ultimately, it's probably our own president who set this in motion...by invading Iraq.
Iran knows they're safe. We're tied down in Iraq, and we know Iran could throw the entire region into turmoil, just by sending some Shi'a militia units to "defend" their brethren in Iraq. Indeed, Iran has threatened to do just that, if we attack them. They know it would ignite a civil war.
In this situation the role of Ahmadinejad cannot be underestmated. Just imagine where we would be now, if instead of saying that israel should vanish/be relocated, he had said something like the political confrontation with Israel is a result of historic injustices which need to be resolved so that the rights of Palestinians are respected. In this case, everybody would be happy with diplomacy and there would be great pressure on Israeli and US hawks to do nothing until there is proof of a real nuclear threat. Instead due to Ahmadinejad as a catalyst we are in a situation reapidly accelerating into uncontrollable conflict.
And if Ahmadinejad is indeed not in conflict at all with other groups, but instead only expresses what a homogenous power structure wants, why all the problems within the regime (e.g. the oil minister, scuffles with ayatollahs, etc). The Iranian regime doesn´t look like a homogenous power structure to me (but can be forged into one by an external threat and a martyric mission, like it was in ´80-88 - the gory glory days which Ahmadinejad wants to revive) and I have the impression that there were some conservatives who wanted to get rid of the reformist movement by bringing in someone to "clean up" the Islamic Republic from such degenerate influences. The classic mistake, like Hindenburg appointing Hitler in 1933. Ahmadinejad got is out of control, and is now endangering the very existence of their republic and nation.
No matter who was elected, we would have reached this point. One, Iran really does want nuclear energy. They have struggled to meet their OPEC quota for awhile now, and are painfully aware that their oil will not last forever. They want to prepare for the future (not to mention sell as much oil and gas as possible to the west). Two, we are trapped by the tar-baby of Iraq, and everyone, including Iran, knows it. This has emboldened Iran immensely. Indeed, I expect it will embolden banana republics all over the world. They know we can't start anything. Or if we do start anything, we can't finish it. We have too much on our plate already.
Also when it comes to whether Ahmadinejad is an extremist or not by Iranian standards I remember that many Iranians were quite shocked both by his taking first place in the first round and then winning the run off. Most it seemed expected that Rafsanjani would win as the 'lesser evil' and 'devil we know' choice. And that it cannot be ruled out that the ballots were somewhat stuffed by coordinated Bassij operations etc.
To participate in successful negotiations, I think you have to be able to place some small amount of trust that your adversary will follow through with the resulting agreements and be able to place yourself in your adversary's chair to fully understand what his/her idea is of reaching a successful conclusion. If they think you are out to destroy them, any attempt at negotiation is more likely to be only an information gathering exercise. This is why I believe there have been no fruitful results with negotiations canceled in frustration by all parties.
So what is their perspective? Example: If Bermuda was responsible for blowing up Twin Towers and the Talaban were stockpiling stolen dirty bombs there now, wouldn't you be highly suspicious of Bermuda's intentions today and saying that, "We are keeping all options open? If Mexico was responsible for 8 years of war and killing I don't know how many millions of Americans with chemical weapons, If.... I think you would be saying "Yes Mr. President. We will blow them off the face of the earth as soon as you say the word." Just because Mr President mentions "Israel", everybody's outraged. Well, that's only because the rest of the world is still on such a (well deserved) guilt trip about their previous treatment of Jews that they are (naturally) very sensitive about it to this day, as well they should.
Well, It seems to me that Iran has "stumbled" onto the ultimate Non-Nuclear Counterbalance. No easy trick. Maybe they should be given some credit for that.
We didn't learn much as to what Iran needs to be able to arrive at a successful conclusion to those negotiations, but let's postulate for a second as to what the major issues of interest to Iran might be. Do you suppose that it might be something like this,
#1 "It must be guaranteed that in order for us (Iran) not to continue to develop nukes, Israel must be stripped of nuclear weapons and subjected to full UN verification inspections, just as we accept now."
#2 "The US must vacate Iraq and remove its Naval Base in Qatar. You can keep operating from Diego Garcia.
What's wrong with those? Do they present real problems for America, or is removing the Naval Base going over the top? Why? Is that too high a price to pay for a future without nukes in a highly dangerous area? Or, do you lose too much face if you have to vacate Iraq or remove a Naval Base to guarantee stability in the most important oil production area of the world? Is it a problem for the EU? What's your opinion of my hypothetical Irani conditions? What do you think the real conditions would be? Would they be acceptable to you, if you were the President of the United States? Why? Why not? I'd like to know your opinion and your proposed solution, if it doesn't involve blowing them back to the Stone Age. Your solution is very highly likely to be more viable than anything Condi can come up with. Help her out here. I don't think the Pipsqueek has thought it through.
When did Israel attack Iran?
http://www.israelnewsagency.com/iranisraelmissilesnuclear8730918.html
In 1981, Israel attacked a Baghdad nuclear reactor. Israel combat jets bombed a French-built nuclear plant near Iraq's capital, saying they believed it was designed to make nuclear weapons to destroy Israel. It was the world's first air strike against a nuclear plant.
So.. Given Israel's behaviorial history and considering the latest threats against Israel coming out of Iran, can you think of a any reason why Israel would attack Iraq, but they would not attack Iran?
Continuing... don't forget it was the US that made the first nuclear attack on any country, which many today believe was totally unjustified under the true circumstances that existed at the time (Germany had already capitulated and Japan's had no remaining mil-ind capacity to speak of) and the motive was simple revenge for Pearl Harbor. Wheather that was the actual motive or not is immaterial. Image and and the resulting emotional response does not foster a detailed investigation into the justification for previous actions. The lasting association is simply who did what to whom.
http://www.amazon.com/exec/obidos/tg/detail/-/0743261127?v=glance
Evidence: In addition to the sunk sub, a massive secret recovery operation, and tales of oil slicks and radiation, satellite photos showed burning missile fuel--the missile blew up in the tube on the surface.
Speculation: The KGB wanted to frame China; the warhead used Chinese fissionable material, and China had a Kilo-class sub, and the Soviet sub sank within the Chinese sub's missile range of Pearl Harbor--significantly closer than the Soviet equipment would have needed to get.
Relevance: If this is right, then it illustrates another failure mode in the nuclear standoff; shows that we came closer to nuclear devastation than we thought; shows that nukes just aren't as safe to have around as we might have hoped; shows that things can go to hell quickly and randomly.
Sleep tight.
Chris
You raise some valid points but there are also some things I have to disagree with. You complain of a double standard, comparing the outrage caused by a call for "destroying the Taliban" (none) and Ahmadinejad´s call to remove/relocate Israel (a lot).
Well, the Taliban were basically a movement , whose members joined voluntarily, that took over a state. The call was never to wipe out the people of Afghanistan, or to wipe out all people in Afghanistan who shared the Taliban´s dominant ethnicity (Pashtun) or their religion. The call was to destroy the Taliban government and the Taliban movement.
Ahmadinejad´s comments were however not directed against a movement, they were directed against an entire people. and the existence of their nation. You could now argue that Israel is simply a piece of land that has been hijacked by a radical political movement (Zionism), like Afghanistan was hijacked by the Taliban. There remain however still much more important differences, like the fact that Israel has long since become a people, and that their nation, at least in certain borders, is fully recognized by the international community.
How do you gain moral or legal justification for political action by governments? Does the justification derive from God, then you will have religious wars of all factions. As long as the justification comes from within the world itself, it does in fact come from the majority, not of people, but their representations. It´s called the United Nations and International Law, and while it may be very imperfect and often insufficient there is nothing better around. And in sight of international law and the UN, the Taliban were not recognized as the government of Afghanistan, and they were taken into responsibility for their actions. On the other hand Israel is recognized as a nation with a right to exist (the matter of Israel breaking many aspects of international law is another matter but does not negate their right as a nation to exist).
Possibly more importantly we saw how much the afghans really wanted to be governed by the Taliban, didn´t we; I don´t think the Israelis have a desire to jump into the sea that is comparable in strength to the desire Afghans had to shave their beards after Nov.12,2001.
Israel and Iran have to my memory never met on the battlefield. (In fact Iran clandestinely procured arms from Israel in the 1980s!) Iraq, the US, Britain, and the USSR all are responsible for aggressions, terrorism, or intervention against Iran. However, Iran is also responsible for plenty of its own turmoil! But Israel?
What is it with the fixation on Israel? Think of Egypt and Jordan, they have fought multiple wars with Israel, are they still calling for Israel´s annihilation; no, they have signed for peace. For Iran, Isreal is really a foreign country, where perhaps certain foreigners are oppressing certain other foreigners. The situation in Israel infringes on Iran no more than apartheid in South Africa did. The questions of Jews in Palestine yada yada El Kuds bla bla is irrelevant. If Iran feels threatened by Israeli nukes, that is another matter. But Ahmadinejad has not called for an end to Israel´s nukes, he has called for an end to Israelis.
Your point regarding the prerequisites for true negotiation is well taken. The approach of the US is that they will act against Iran if they do not give up their nuclear energy program, however if Iran does agree to give up the program, it appears guaranteed that the US will claim that the program is continued in secret anyway, and attack just the same (see Iraq), and even absent the nuclear issue the US have dedicated themselves to destabilize and regime-change Iran and take over their country. And any program that would allow verification to the standards that the US is willing to accept would mean posting US personnel all over the country, aka giving up to occupation without a fight, as the US will never accept a verification by the UN (again, see Iraq).
So indeed there is nothing to negotiate as long as this position is held, and that is why I assume the Iranians have come to the conclusion that a US/Israeli attack is inevitable anyhow; Ahmadinejad´s goal seems to be to rekindle the flames of early revolutinary hysteria and circle the wagons. He doesn´t mind feeding the flames.
The problem is, that even if we assume the EU and US come to the conclusion that there is no real threat, we cannot realistically expect Israel to ignore the situation. The Jews have learned two lessons the hard way, 1) do not be patient, obedient and rely on others to help you in your hour of need; 2) if someone says he wants to kill you, believe him.
Your hypothetical conditions would in my eyes be totally acceptable, if we add to them, 1) a guarantee that Iran will respect the rights of Iraqis to come to their own decision about their future (if they WANT an Islamic republic, so be it), 2) a reasonable solution to the 'terrorist support' issue (easy, actually), 3) guarantuees to freedom of shipping in the Strait of Hormuz so Iran doesn´t abuse its position by threatening with closing shipping for every little thing it wants. But of course this is all parallel-universe stuff.
If I were president of the United States, ha ha - well if I suddenly got remote-control of Bush´s brain I would still have the problem that the situation has developed to a point were it is very close to getting out of control - and this is one thing that Ahmadinejad does have a lot of responsibility for. If he had continued playing a different hand he would still have full support of Russia and goodwill of Europe, due to his statements he has lost this. However if a different strategy could have been followed, well I would start by thinking about the following things.
I presume you've also been through first grade, or bot school, so you will also know what is basically right and wrong and acceptable or unacceptable. I don't need a code of anybody's laws to tell me what is right and wrong. When you write down the "laws" all you're really doing is defining the loopholes for some wise guy to get away with murder. And, as we've seen many times, if a certain power doesn't like the existing law, he/she/it/they will change the law to suit them, or failing that, simply disregard them entirely if they think they do not need to be held accountable to the law. You seem to imply that the Taliban were not an officially recognized, person, place, thing, organisation or government, therefore you can overthrow them or vaporize them as you chose. Extending that analogy, are you saying that, if I don't have a valid passport or driver's license at this moment, or for some other reason, I am not an officially recognized human being, you're free to kill me? Man! That's like Jihad, something else I don't understand; a "law" that says (from what I do understand about that) it's alright to kill me if I'm not a Muslim, as long as it was properly sanctioned by meeting some kind of religious conditions. See, there's all kinds of "laws". You say that's making some irrelevant comparison between apples and oranges and you have nothing like that written down in your government's "codes". What about the draft back in Viet Nam days? Closest thing I can think of to Jihad. I would have had to go there and kill people, just because the US law said the conditions were present and I had no other viable choice. What did any Vietnamese ever do to anybody within 5000 miles of the United States borders? What does clear and present danger mean? See... loopholes all over the place.
I think my "fixation" on Israel has something to do with their strategic location and them being the most powerfull recognised adversary of Iran and just about everyone else in the area at one time or another who also happen to have a widely recognised nuclear capability. Something to which perhaps Iran would like to provide some conterbalance. Given the US history with building nukes to counterbalance the SU for most of the last 60 years, do you claim that would be an unnatural desire? I don't think I tried to justify Iran's call to oblitherate Israel. I think I was examplifying their natural desire to have parity with their neighbours.
How can you say that the Israel problem is irrelevant when every mideast country I know of and the US government among others has agreed that the resolution of the Israel-Palestine issue is paramount to a "Long and Lasting Peace in the Area"? Although later down, you seem to me to be agreeing that it is not irrelevant. Confussed me.
I don't see anywhere else where we have any unresolved issues and found the rest quite good reading, except I don't think the Pipsqueek's brain even functions on remote control (we'll have to ask Cheney how he does it. I think its cue cards), but seriously .. dead on. The US needs to stop showing so much (bloated) face in order to avoid losing it and getting their political ass kicked in the process.
I have only to add a couple of items,
1.) That the nuclear kitty is out of the bag and we all need to learn to deal with it sooner or later. If we don't resolve this issue with Iran, it will resurface sooner or later, probably sooner. Direct confrontation is definately not the way to go about this. Do you suppose the US can bluff them into a rerun of the old "Star Wars" Antimissile System Development Program and bankrupt them out of existance? Looking at the current account balances of each country, that doesn't look like a promising solution, but then again, cheap credit may be available to finance a system like that. Hopefully it will be "Open License Technology". Oh I suppose you just giving them to everyone now would work too... little difference... in the long run we'll (effectively) get to the same point on the curve, if we're not their now.
2.) Even if Star Wars goes to production, the threat of terrorism could go on unabated. I for one don't like the errosion of civil liberties, and I think the costs of looking under everyone's beds is getting way too far out of hand for the methods used today of combatting that threat. Even in GB, where there must be the highest number of CATV installations per capita than anywhere else on the planet, they still got to the tubes. Sure, those guys were identified by their pictures, but the CATVs didn't stop anything from happening. Is it possible that simple probability of one getting through and the cost of maximizing survailence and interception before the fact actually prohibits an effective implemantation of antiterror measures? Is this the ulitmate counterbalance to everything?
Well, anyone who has read my stuff here knows I'm not the least bit cynical--though I do think that Algeria is a land of opportunity.
We can only look at history (as you have meticulously done Stuart) to give us a clue of the impact. But in 1979, we had a huge natural gas inventory to fall back on (plus nuclear, hydro etc). Now our 'fuel-switching' is biomass and coal, both viable but with limits, as well as capital and time constraints.
In my opinion, Irans production totally offline in todays world is not only a price spike but a disaster.
This is interesting because after the Venezuelan political unrest in 2002/2003, their production has never reached former levels.
However, the geopolitical effects of an attack on Iran would be severe. I've thought for a long time that Iran is to World War III as Poland was to World War II.
Guess who is playing the role of the Germans this time?
This morning, a Fox News talking head introduced a segment on Iran with the following lead, "When will the time for talk be over and when will it be time for action?"
Now, I would have never thought that way. It's a brilliant point you've made Stuart.
This explains very well why the rise of prices since mid 2004 haven't made more havoc than we'd probably expect. Smaller increases allow people to acomodate more easely.
Well, as for Iran it really is a difficult case. I can't see any other way to the West than diplomocy. A diferent course of action will be worse to us than them.
And of course, I believe Iran to be a respectfull country like any other. They've signed the Non-Proliferation treaty, why should we distrust them?