Monday, April 02, 2007

What The Mullah's Know

Iran grabs a handful of British Sailors and Marines and proceeds to humiliate Britain and the West. Tensions rise quickly and the price of oil goes up. The business and general press are full of references about how many millions of barrels of crude pass around the strategic horn and reminding all and sundry that Iran has the second largest source of conventional crude. Admirals and Generals squint at strategic maps contemplating options.

Most of Iran's production stays in Asia specifically China and Japan. If the west damages Irans oil production these economies should experience severe strain. Applicable stock indicies and other indicators do not trade accordingly. If Iran cannot produce sufficent supplies other sources would be hard pressed to replace these stocks without short changing other regular paying customers and disrupting their supplies. No one seems to be truly contemplating this scenario.

The Mullah's need cash. Irans economy is increasingly less efficient with every passing day. They even have to import refined gasoline to fuel their own passenger cars and local truck fleets. Their brand of Islam and the ideological exports consume huge amounts of capital without any immediate cash returns.

The political crisis is self funding prehaps even profitable. When the pentagon selects targets you can just guess they will not knock out anything that cannot be fixed very quickly. The Mullahs need the cash. Oil addicted economies need regular deliveries.

The latest oil crisis is a co-dependent hysterical tantrum following a well understood script. Because the Japanese and Chinese markets are relatively unconcerned we may conclude this recent price fluctuation is not important.