Showdown with Iran Threatens $150 Oil

Iran just put the oil knife to Uncle Sam's throat.  And Iran is just one of our enemies with the oil knife.

Yesterday, a high Iranian official warned that Iran would close the Straits of Hormuz, through which most oil from the Middle East travels by tanker, if Iranian oil exports were stopped by international sanctions, designed to halt the Iranian nuclear weapon program.  The Iranian navy is in the middle of a major exercise in the Persian Gulf.  In response, President Obama had the commander of the US Navy's 6th fleet warn that no blockage of the Persian Gulf would be tolerated.

The stage is set for $150 global oil price within weeks or months, if hostilities break out, and the US economy cannot withstand $150 oil.  Yet, the truth is that the political risk around oil means that the prospect of $150 oil always is possible and always within weeks or months of becoming real.

While the US for the first time in 40 years has reduced its dependence on foreign oil, lowering oil imports from 60% to 46%, that 46% of oil that remains imported, plus that 100% of oil is priced in global markets, constitutes the oil knife at Uncle Sam's throat.

The Iranian dictatorship knows that it can cause havoc to us and the world economy by initiating armed conflict in the Persian Gulf, even though it would lose the immediate military confrontation.  Its real weapon is not the Iranian navy and its speed boat squadrons but the oil knife.  With that knife, it loses the armed conflict but wins by driving the oil to price levels that create a global recession.

Of course, we could disarm Iran, remove the knife from Uncle Sam's throat, and make the Iranian oil threats impotent by establishing a sustained program to deploy biofuels, natural gas vehicles, and electric vehicles.  We would not need the 6th fleet in the Persian Gulf to protect our economy.  By moving from oil to alternative transportation fuels, we could also lower our energy bills, make ourselves more competitive, create literally millions of jobs in the USA, and prevent huge amounts of pollution. 

All that is needed to get the job done is smart, sustained policy of incentives and standards to build the fueling infrastructure and to put on the road alternative fuel vehicles.  The broken market left alone leaves us addicted to oil and subject to Iranian blackmail.  I am tired of waiting.