I was reading The New Yorker this morning (a ritual, such as it is) when I came across The Financial Page: Troubled Waters Over Oil. What troubled me upon reading it was the effect that the bellicose statements by the Bush administration about Iran have on the Risk Permium on oil. In a nutshell, the more Bush blathers on about Iran, the more money Iran makes from oil.
More over the jump....
This may seem like common sense to many of you readers; however, this is the first I've seen of it in a mainstream (albeit liberal) publication. I doubt that the average American citizen is aware that:
It’s hard to measure the risk premium exactly, but most estimates suggest that in the past couple of years, thanks largely to the turmoil in the Middle East, it has accounted for somewhere between ten and twenty dollars on each barrel of oil.
For argument's sake, let's call it fifteen dollars per barrel; a simple (visual) analysis of the relationship between oil prices and gasoline prices suggests that this fifteen dollar premium represents about a seventy-five cent per gallon premium on gasoline (nice charts here). I'm not arguing that this would go away if Bush would just STFU about Iran, but:
...because Iran has the world’s second-largest reserves and pumps so much oil, trouble with Tehran sends the premium soaring.
And, when the premium soars, Iran makes more money. So do Dubya's buddies. We pay for it. It's a win-win-lose situation (as usual).
The article concludes with this nugget of common sense:
...it’s significant that, historically, when oil prices have been low, Iranian reformers have been ascendant and radicals relatively subdued, and vice versa when prices have been high. Talking tough may look like a good way of demonstrating U.S. resolve, but when tough talk makes our opponent richer and stronger we may accomplish more by saying less.
It's almost, dare I say, treasonous.