As America starts dropping bombs on Iran, and Iran inevitably chooses to retaliate in the only way it can, there'll be disruptions to Persian Gulf shipping. Iran's Houthi proxies will start lobbing antiship missiles at passing commerce. Shia Iran will pitch ballistics at the wealthy Sunni petrostates, and we'll see burning refineries and damaged or sunk tankers.
Even if we don't see that happen, the markets will price that potentiality into a barrel for a while.
So the cost of a barrel of oil will rise, as will the price at the pump. That's not collateral damage. I'm kinda sorta of the mind that this is a goal. Meaning, somewhere, someone knows that war with Iran is in America's financial interest.
I mean, the primary goal is advancing the interests of Bibi and the Arab Petrostates, who are largely now aligned. But as a secondary goal, rising oil prices are in the direct interest of American petroleum producers.
Because right now, the United States of America is sitting on a huuuuuuge reserve of shale oil. In Utah, Colorado, and Wyoming, we have the largest such reserve known to humankind. It contains within it trillions of barrels, enough resource to keep us all burning carbon unabated for nearly a century.
But using that oil is very resource intensive. It's a highly technical process, requiring substantial research and engineering, and thus has a far higher profit threshold than old-school oil drilling.
If the price of oil, per barrel, is less than sixty five to seventy dollars? Some production becomes unprofitable. The farther below seventy bucks a barrel it falls, the more the business model for shale starts to collapse. Below fifty bucks a barrel, it's time to shut down production. You're spending more to get it out of the ground than you're making.
Three months ago, oil was running at $58 per barrel, meaning production was getting right near the edge of viability.
Now?
Now it's soared, up to nearly $75 a barrel, comfortably above the point at which domestic shale is commercially profitable.
For OPEC nations that traditionally drill, some losses and damage to production will be more than made up for by soaring profits. For American production, this war could be a lifesaver.
Which is just such an odd, unpleasant business.
Posts
