Why have oil prices gone up?

In the wake of the latest NIE suggesting that Iran’s nuclear program has been frozen in carbonite since 2003, I would have expected oil prices to have fallen. After all, the obvious fallout from the estimate is that neither military nor enhanced economic sanctions will be imposed on Iran anytime soon. If one reason oil ...

By , a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast.

In the wake of the latest NIE suggesting that Iran's nuclear program has been frozen in carbonite since 2003, I would have expected oil prices to have fallen. After all, the obvious fallout from the estimate is that neither military nor enhanced economic sanctions will be imposed on Iran anytime soon. If one reason oil prices have spiked is increased political uncertainty, then surely the inteligence finding should have ameliorated these fears. Imagine my surprise, then, to see that oil prices rose yesterday. Furthermore, the AP report has no mention of the Iran situation, discussing OPEC machinations instead. This could mean one of four things is true: 1) Oil traders are slower at working through geopolitical ramifications than your humble blogger; 2) Oil traders are so smart that they already knew Iran's nuclear weapons program had been frozen, and had therefore already priced in expectations that the U.S. would eventually discover this fact. 3) Political factors are not as important in influencing oil prices as some commentators believe. 4) The NIE will have zero effect on the expected probability of the Bush administration's decision to use force. I'm 99.99% sure the answer is not #1 or #2, and I'm 90% sure the answer isn't #4. But #3 seems inadequate to me. Readers are encouraged to proffer their own answers.

In the wake of the latest NIE suggesting that Iran’s nuclear program has been frozen in carbonite since 2003, I would have expected oil prices to have fallen. After all, the obvious fallout from the estimate is that neither military nor enhanced economic sanctions will be imposed on Iran anytime soon. If one reason oil prices have spiked is increased political uncertainty, then surely the inteligence finding should have ameliorated these fears. Imagine my surprise, then, to see that oil prices rose yesterday. Furthermore, the AP report has no mention of the Iran situation, discussing OPEC machinations instead. This could mean one of four things is true:

1) Oil traders are slower at working through geopolitical ramifications than your humble blogger; 2) Oil traders are so smart that they already knew Iran’s nuclear weapons program had been frozen, and had therefore already priced in expectations that the U.S. would eventually discover this fact. 3) Political factors are not as important in influencing oil prices as some commentators believe. 4) The NIE will have zero effect on the expected probability of the Bush administration’s decision to use force.

I’m 99.99% sure the answer is not #1 or #2, and I’m 90% sure the answer isn’t #4. But #3 seems inadequate to me. Readers are encouraged to proffer their own answers.

Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner

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