Analyst's note: An absolutely stunning analysis is presented here by Becket Adams with The Blaze. As pointed out by John Ransom with Townhall Magazine in his original article, "If you thought war was expensive, wait until you’re asked to foot the bill for the peace." Through these articles we can see with even greater clarity the reason why the U.S. must have energy independence ... especially from the Middle East. I recommend an internal site search on the term "Iran" for additional insight and perspective.
"When it comes to Iran and it’s threat to close the Straits of Hormuz, the United States might only have two options: war or higher oil prices. And one writer believes war may actually be cheaper.
Perhaps before we review his argument, a recap is in order: what’s this talk about closing the Straits of Hormuz?
From Agence France Presse (AFP):
No oil will be permitted to pass through the key oil transit Strait of Hormuz if the West applies sanctions on Iran’s oil exports, Iranian Vice President Mohammad Reza Rahimi warned on Tuesday.
The threat was reported by the state news agency IRNA as Iran conducted navy wargames near the Strait of Hormuz, at the entrance of the oil-rich Gulf.
“If sanctions are adopted against Iranian oil, not a drop of oil will pass through the Strait of Hormuz,” Rahimi was quoted as saying.
“We have no desire for hostilities or violence… but the West doesn’t want to go back on its plan” to impose sanctions, he said.
“The enemies will only drop their plots when we put them back in their place,” he said.
Translation: if the U.S. imposes sanctions on Iran for advancing its nuclear program, Iran has threatened to sever a vital artery of international oil trade.
This is where the numbers get interesting. Townhall’s John Ransom explains:
According to the Center for Strategic and International Studies, 40 percent of the world’s oil supply, or 17 million barrels per day, travels through the Strait of Hormuz. And while alternate routes can be found to ship oil, the alternate routes can only carry about one-third of the oil that would normally go through the Straits or about 5 million barrels per day. The supply deficit would be about 12 million barrels per day- or two thirds of the entire daily demand by the United States of about 18-19 million barrels.
If Iran keeps its promise and cuts the world off from an estimated 12 million barrels of oil, don’t be surprised if the price per barrel reaches $250-300.
Will it really go that high? Most likely.
Recall that Brent North Sea Crude went from about $95 per barrel in February and peaked at about $125 before settling down to its current spot price of around $108. And that was because the civil war in Libya removed 1 million barrels of oil supply per day from circulation.
Now imagine if Iran actually makes good on its threat to close the Straight. What does this mean?
Ransom explains:
9 million barrels at $250 per barrel comes to about $2.2 billion per day. If you add a similar increase to domestic prices, you can add another $2 billion per day to the energy costs of the country or about 30 percent of our entire current GDP, which of course would shrink dramatically.
If oil prices rise even a fraction of the scenario that I have sketched out, that won’t just be economic stagflation as we witnessed starting in the spring, that’ll be economic implosion of the worst order. Think of inflation in the mid-to-high teens and unemployment shooting straight up past ten percent nationally.
That’s a best-case scenario. It could produce a world-wide Weimar Republic, with hyper-inflation; the last straw of the banking system that we have in place right now, which not coincidentally is made mostly of straw.
Well, that’s not very comforting. How can the U.S. avoid this type of economic disaster?
In the past, the U.S. has relied on the Navy’s 5th Fleet to keep the Strait open rather than see the price of oil skyrocket.
“But this isn’t 1987 or 1990. The stakes are pretty high with instability in the Gulf states…especially after America left Iraq with a power vacuum,” Ransom points out. “Look for Iran to press its advantage because they have boots on the ground and we do not.”
And that may not be an unfair analysis. It‘s quite possible that Iran’s threat is more than just saber-rattling. If they are serious, and they plan to close the Straight, will America have to go to war rather than suffer the economic consequences?
If the U.S. takes the route of the former, it could turn into a war on land in Syria, Lebanon and Egypt if not Saudi Arabia, Bahrain and Kuwait “with the U.S. on one side and Iran on the other.” Clearly, America is in no financial position to finance military operations of this magnitude.
If the U.S. takes the route of the latter, well, that’s not really an option. With the global economy already so precariously balanced on the edge of collapse, world leaders cannot afford to have a massive supply of the high-demand commodity withheld from the market.
This brings us back to the first question: are these really our only two options? For now it would seem that way. The only way the U.S. could have a third option is if it gets serious about energy independence.
On the one hand, as explained in the above, the U.S. cannot afford for Iran to put a choke-hold on the oil supply. But on the other hand, the U.S. cannot really afford a multinational war (plus, at this point, the thought of another war in that region is pretty unappealing to just about everyone).
Therefore, in the event Iran is serious about the Straight of Hormuz, it appears that unless the U.S. decides to invest seriously in energy independence and cultivating its own resources, America has to decide whether she wants to stab herself in the eye or shoot herself in the foot.
Read Ransom’s entire analysis here.
Related items:
Chart courtesy http://www.wtrg.com
Group promoting 'peace' in Middle East tied to Soros: Occupy, MoveOn, ACORN, etc.
Another Iranian Threat: Cargo Containers in Transit
Judge Rules: Al-Qaeda, Iran, Hezbollah Deeply Involved in 9/11
Can the United States Continue to Suffer the Willful Ignorance of her Government and Survive?
The Hitman Cometh: America to be 'War Zone'
China Is Helping to Arm Iran and Sidestepping Sanctions Thanks to North Korea
