$105 Oil

[coolyokeluke]

Foreign policy scholar are you? Just how much oil do we import from Iran? What countries do they supply?

The threat from Iran is not their oil, or production (they can only refine 40% of their own output)... but the fact that they can close the Straights of Hormuz in an instant, and thus cut off just about all middle eastern oil.

While they could quickly shut down the Straights of Hormuz they know they couldn't keep it shut down for long. It wouldn't be just a US military response at that point.

Oil's a global commodity. Where we get it isn't so important in the big pictures as the percent of world production each country/region produces, and what effect losing that share would have on the world petroleum market. With supply very tight, any hiccups (nigerian rebels, storms in the gulf of Mexico, Iran's idiotic leader making stupid comments, etc) or even potential hiccups cause fairly big price fluctuations.

 

[cybourg10]

Here is an interesting article on the history of oil, also if you have some time on a layover watch Robert Newman's sketch "History of Oil." Whether you agree with peak oil or not its worth a look.

The article is from 04 fyi.....

History of Oil: The Single Greatest Prize in All History
A brief look back at oil… and what it means now for investors
By Dr. Steve Sjuggerud, Chairman, Investment U



"The price of crude oil increased nine-fold within a few months, reaching a level that in real terms has never been equaled," Edward Chancellor tells us about the 1865 oil frenzy in his outstanding book on speculation, Devil Take the Hindmost. He continues:
"In a rerun of the mining mania, new companies were formed [in 1865] at little or no cost, fraudulent claims to oil rich land were incorporated into companies with inflated capitalizations, and petroleum stocks were heavily manipulated. Shares were run up to a great height before the petroleum bubble evaporated into thin air."
Oil booms and busts have come and gone.
In our report on the history of oil, we'll cover what's affected the price of oil since World War II through the Gulf War, to draw some conclusions about this most precious of commodities today.
The story seems to repeat itself over and over… Boom and bust. Opportunity found, and opportunity literally stolen away. Oversupply and shortage. Optimism and despair.
Let's take a quick look over history, to see if any patterns emerge…
Oil Before WWII: "A Cure for Kidney Stones"
Oil has been around for a while… But the true importance of oil worldwide wasn't understood until World War II. For example: Oil in the 1860s, you may be surprised to learn, wasn't for fuels. As William Fowler wrote, oil in the 1860s was hailed as "a disinfectant, a vermin killer, hair oil, boot grease, and a cure for kidney stones."
Before World War II, the issue was too much supply… We'd discovered oil in Texas in the 1930s, and the major companies were colluding to keep the price up. World War II then taught government the importance of having a safe supply of oil.
In 1933, Americans paid $275,000 to Saudi Arabia's King Ibn Saud for an oil concession. He thought he'd sold the Americans sand, as the Brits didn't think there was oil there. After five years of disappointment, the Americans struck oil in Saudi Arabia. One expert at the time described Saudi Arabia's oil as "the single greatest prize in all history."
At the same time (March 1938) on the other side of the world, the Mexican government expropriated the assets of the U.S. and U.K. oil companies in Mexico. This woke big oil up to the real risks of doing business in undeveloped countries. Until the end of the 1940s, the U.S. and Latin America provided Europe's oil.
Starting after World War II, it was clear that the world was going to need a lot of oil… more than Socal and Texaco in Saudi Arabia could provide.
The Government Steps In… People Get Rich
The U.S. government gave every incentive for more companies to enter the Saudi fray, and Exxon, Chevron and Mobil (actually Socony-Vacuum at the time) joined in.
Saudi Arabia was going to be rich. Washington promoted a new deal - a 50/50 split of oil profits between the companies doing the work and the countries where the oil was.
To match the American assets in Saudi Arabia, the Brits developed a vast oil industry in Iran. At that time in history, it was the biggest single foreign asset of Britain.
The Brits were slow to come around to the 50/50 deal. It really hurt them… In 1951, the Iranians simply took the oil industry from the Brits, nationalizing its oil industry. Nationalism was rising in the Middle East, and the balance of oil power was just beginning to shift.
OPEC: The Shift of Power to the Middle East
OPEC was formed in 1960. A Venezuelan and a Saudi got together over a soda in 1959, and thought of collusion. August 1960 was the last straw for the Middle Eastern countries, as the major Western oil companies lowered oil prices yet again. OPEC acted unilaterally to raise prices for the first time in 1963.
In what gets to be an old story, Libya was then discovered to have vast oil reserves. A U.S. company built the infrastructure. Then the terms were changed drastically by the Libyans. Libya became the first producing country to dictate the terms to the West. This change was huge… The heyday of the U.S. majors was over. Now the Middle East held all the cards.
The major oil companies had basically controlled oil prices from the end of World War II until 1973. Their day was done.
Nixon, the Shah and the 1970s "Oil Shocks"
For more than a century, the British had policed the Gulf states. But in 1971, the British withdrew from the Middle East, leaving the Arab states to police themselves. Nixon chose the Shah of Iran to fill the policing vacuum.
The Arab Israeli War (the Yom Kippur War) broke out in 1973. The U.S. flubbed its attempt to secretly fly planes into Israel at night to help the Israelis fight. Instead, the U.S. planes arrived in the morning light, filmed by TV cameras.

The "oil weapon" was then used by the Arabs to squeeze the States - the Arab oil embargo caused a panic in the West, as oil soared and subsequently so did gas prices.​

• Oil prices are driven by politics in the short run and by economics (supply and demand) in the long run, a quick glance over history suggests.​
• Oil prices could fall from here, as war and supply tensions fall.​

OPEC had the pricing power now. So Western companies started a hunt for oil outside the Middle East. Soon more oil was being produced from the North Sea than from many OPEC countries.
The Shah fell in the Iranian Revolution in 1979, and Western influence over Mid-East oil shrank even further. Two weeks after the fall of the Shah, the anti-western Ayatollah Khomeni came to power, and the Second Oil Shock hit the West, this time in 1979.
In the Second Oil Shock, of 1979, there was a panic… But in reality there was no shortage of oil. Oil touched $40 a barrel, and OPEC felt it could raise oil prices at will. In hindsight, it was the height of OPEC.
In the 1979 demise of the Shah, Saddam Hussein saw opportunity… he set out to either take control of Iran's oil or destroy it. The Iran-Iraq War ran for eight years, until both sides threw in the towel.
OPEC's Importance Shrinks and Market Forces Take Hold
Oil was discovered in Alaska and, by the early 1980s, a quarter of U.S. production was coming from Alaska. By 1983, four years after the Second Oil Shock, it was clear there was plenty of supply and no increase in demand, so OPEC had to cuts its prices. OPEC was forced to institute production quotas to limit production and keep prices up.
In 1986, oil prices fell from $29 to $10 a barrel. Market forces now ruled, as oil prices were set in the futures markets in New York (that started in 1983). OPEC was no longer in the driver's seat. With prices falling, oil companies had to shrink.
Saddam Hussein had run up $75 billion-plus in debts in his attempt to take Iran's oil, and he asked his Middle Eastern neighbors for debt forgiveness. Kuwait refused. Saddam was desperate for cash… and Kuwait was a convenient target, next door, with tons of oil. He invaded Kuwait in 1991 and was swiftly defeated by Americans.
The price of oil swiftly rose above $40 a barrel during the war, and then it fell back down.
From 1971 to 1991, the Middle East was left to police itself. It failed. After the Gulf War, the U.S. picked up where the British left off in 1971, policing the Middle East.
Oil and War
Another interesting fact from history is that oil prices don't necessarily rise when U.S. national security is threatened. When national security is threatened, history suggests that oil prices only rise if the opponent poses a threat to the world supply of oil.
A few examples:

• During the Korean War, oil prices didn't rise.
• During the year of the Cuban Missile Crisis, oil prices didn't rise.
• And as we steadily became more involved in Vietnam, oil prices fell from 1965 to 1972, adjusted for inflation.

In these situations, the oil supply was not at risk. So if the world supply of oil is not at risk, the price of oil is not at risk.
However, if the world oil supply is perceived to be at risk, oil prices will rise. During the Yom Kippur War, the Iran-Iraq War, the Gulf War, etc., prices spiked, but subsided dramatically over the following years, crashing a few years later (in the mid- to late 1980s and the mid-1990s, in those two examples).
So, based on limited evidence, it seems clear that oil prices rise when the supply of oil is threatened, not our national security.
Where To From Here?
Our brief view over the modern history of oil would lead us to believe that oil prices are driven by politics in the short run and by economics (supply and demand) in the long run.
So the questions that need to be answered right now are:

A. What are the economics of oil right now? What are the fundamentals, as the fundamentals are what matter in the long run? Is there plenty of supply? If there is, then prices should come down, eventually.
B. Will the War on Terrorism affect the world's supply of oil as badly as the current price of oil suggests? That's the important question regarding oil. At first glance, it appears that the price of oil is pricing in a great deal of disruption. It may be priced for fear right now, not reality. But who knows?
​

Our brief look over history suggests that fears over supply and war do eventually subside, and oil prices then return back to earth.
A fall in the price of oil may be coming. But with the price of oil near multi-year highs, we're not there yet…

 

[Flybywire44]

Foreign policy scholar are you? Just how much oil do we import from Iran? What countries do they supply?

The threat from Iran is not their oil, or production (they can only refine 40% of their own output)... but the fact that they can close the Straights of Hormuz in an instant, and thus cut off just about all middle eastern oil.

Scholar? No, just making an observation... if thats okay with you.

Anyone can look on a map and see where Iran sits on the Persian Gulf... Don't flatter yourself. Iranian production (refined or unrefined) affects us through global demand no matter where they export.

BTW, its called the "Strait of Hormuz" not "Straights of Hormuz".

Enjoy your high horse bud. :smash:

 

[CFI2766]

Foreign policy scholar are you? Just how much oil do we import from Iran? What countries do they supply?

The threat from Iran is not their oil, or production (they can only refine 40% of their own output)... but the fact that they can close the Straights of Hormuz in an instant, and thus cut off just about all middle eastern oil.

Easy there, big guy. Being a Viper driver doesn't exactly make you Condoleezza Rice, now does it? It's okay to have an opinion, but do you have to attack folks with it?

Here's my opinion:

Iran shutting down the Arabian Gulf is a pretty far fetched possibility. By doing so, and immediately cutting the cash flow of every nation/state in the area, they would alienate themselves and hurt their allies. Yes, in the short run, it would hurt the United States. A couple of months of missed payments on the A380, however, will turn even the strongest proponent of neutrality into a fire breathing opponent of Iran.

Also, it's highly doubtful that Iran would go nuclear in the Gulf, for obvious reasons. A nuclear confrontation in the Arabian Gulf would destroy the one reliable source of capital that Iran has, thus, marinalizing Iran as a power player in the world. Ahmadinejad wants power and world recognition far more than he wants what is best for his people. Taking away that power and recognition is not in his best interests.

Therefore, if a nuclear response is not an option, it then becomes a discussion of his military assets versus the assets of primarily the United States. I personally believe that even if the United States had to correct this situation without assistance, it would be a non issue. However, the United States would not be working 'alone'. The entire world would not stand for Ahmadinejad controlling the Gulf.

 

[atpcliff]

Hi!

The oil speculators have been running the price down. They move it up, if it's too low, and down, if it's too high for current market conditions.

I wonder why I haven't heard any of the media or politicians calling for the stopping of oil speculation because they're all mad they're driving the oil prices DOWN?

It's a two-way street, which everyone has forgotten in America's "NOW, NOW, NOW" mentality.

If we had been looking towards tommorrow, there would be electric/hybrid/alternative fuel vehicles all over the place, and GM/Ford/Chrysler would be 1/2/3 in the world and US in auto production.

We LET the Asian automakers kick our a$$ because we want a bonus and profit THIS quarter. Who cares what happens to the company in 10 years!!!

The situation we're in now is because our attitude towards life is wrong, for long-term stability.

cliff
YIP

 

[drinksonme]

Bottom line, if Iran gets a Nuke of any sort, there will be a war the next day. Isreal will take care of them before the rest of the world has time to move in with diplomatic steps.

 

[CFI2766]

Bottom line, if Iran gets a Nuke of any sort, there will be a war the next day. Isreal will take care of them before the rest of the world has time to move in with diplomatic steps.

I concur with the intent of your post, but doubt the practicality of it.

True, Israel will not stand for a nuclear Iran. With, or without, our help or blessings, Israel can more than adequatetly defend itself.

That being said, Iran has done a credible job of defending against a single, or series of, airstrikes by dispersing their nuclear program. This would not be similar to Israel strike on Iraq's nuclear capability in '81.

Therefore, the last thing the U.S. needs is for Israel to attempt a strike that would almost certainly turn into a full-on shooting war. This would only serve Iranian (North Korean, and Russian, as well) interests.