Iranian Drama Is Too Much To Stand

I get that in the small circles of your subconscious, saying that the Iranian embargo will naturally lead to higher prices is about as instinctive as when you bite your nails when you’re nervous.

Trying to be suave and enlightened, it’s similarly impulsive that you explain your tic with elaborate and embellished words, to try to cover your weakness of mind.

“Why, the Iranian oil embargo, in my estimation, is going to cause a constraint, vis-à-vis lower supply to Europe,” you say with great self-worth and self-confidence. Never one to underplay your own “knowledge” you add unreserved little snippets for those who would think otherwise. “Certainly, this is as basic as economics comes, you drab simpleton. It’s quite alright if you don’t understand it. And so Brent must go to $125.”

Save your spur of the moment comments, and save me from listening to you. I’ve had more than enough of this rot for three months now. I already was so rewarded as to be one of the few to bet against oil on its huge move lower in August; and for that I watched in amazement as within two weeks, “everyone” was betting against oil. I saw with sickening disdain those of you who were pumping oil all but seamlessly, shamelessly up until then, pivot to a new catchall: that oil was somehow a contrarian trade rather than a failing thesis.

And now you’re doing it again. Oil managed to almost recover its highs from last year. That is all that has happened. Yet listening to the perpetual “logic” coming out of such (as it were coincidentally, broke) establishments like SocGen, I want to start throwing empty drum barrels into their headquarter’s main entrance so that these self-described-analysts can dodge them as if they were my literal criticisms of their piss-poor work quality.

How does this embargo constrict supply? The oils still out there, unless you think Iran is going to stop pumping it. Last I checked, complicated supply and demand relationships alone don’t spur price. What is to stop a place like China from capitalizing on Iran’s precarious predicament by buying their oil at a steep discount from market price? China isn’t exactly in a huge rut of oil right now; they’ve reduced their consumption from Iran itself steeply this past year. And if they were to do this, then they would also likely require less oil from the rest of the world.

Bam! I’ve just dreamed up a situation where oil trades down on the Iranian oil embargo, as then the no-longer needed Chinese oil, displaced by exclusive and cheaper Iranian oil, would start finding its way to the rest of the world, creating a localized glut elsewhere. China and Europe are separated from bidding against each other and individually have more sway over their local, controlled markets.

Is it going to happen? Not necessarily. But we’re not oh-most-definitely-without-question going to get this supply constraint everyone has been hammering on about today either. It could easily swing either way, or nowhere, because this doesn’t change supply at all.

This act does nothing to fundamentally alter the amount of oil being produced in the world. Unless you believe the Iranians are going to lay down and die, why would you also assume they won’t manage to find buyers for their oil? If oil is in such high demand right now (unless its $100+ price is greatly undeserved…), what makes you think the Iranians couldn’t possibly find someone to pick it up at some price?

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