Iran, high oil prices, firemen and provocateurs

Oil prices are going through the roof. As usual, we have actors tamping them down, and others pushing them up. All of it links with Iran, meaning there is no visible terminus.

On the tamping-down team, Saudi Arabia has raised exports to 9 million barrels a day — a 1.5 million-barrel-a-day hike — to help curb an Iran-driven panic that has kept prices well over $100 a barrel, write Reuters’ Jeff Mason and Matthew Robinson. U.S. Treasury Secretary Tim Geithner says the Obama Administration is keeping open the option of providing a jolt of oil to the U.S. market through the Strategic Petroleum Reserve, as it did last year during the Libyan oil crisis. And the U.S. military is putting plans into motion to secure the Strait of Hormuz — the channel for some 17 percent of the world’s daily oil supply — according to the Wall Street Journal’s Adam Entous and Julian Barnes.

Ordinarily, the Saudi move should help. That it hasn’t suggests the virulence of the virus it is attacking. Injections of strategic reserves should have little if any impact, since oil prices react to the ability to produce from newly available oil wells — so-called spare capacity — and not to sell already-produced oil whose existence is long recognized by the market. As for military preparedness — that could play a role in the event the Strait is actually closed, but otherwise is no more than grist for barroom discussion.

Meanwhile, the market is putty to the provocateurs, among whose culprits we include the ratcheting up of a Western-led campaign to choke off Iran’s oil export earnings, which were $100 billion last year; Iran’s own politically minded bellicosity less than a week before hard-fought March 2 parliamentary elections; and general edginess linked to the Arab Spring.

But the main actor in oil’s rise is a general context of war fever. In terms of the U.S., this bellicose atmosphere is needled by a chest-out breed of analysts who are inclined to identify disrespectful and dangerous foreigners, and to brand others as wimps for failing to notice. A primary channel of such indignation is the editorial page of my former newspaper, the Wall Street Journal. Only today, guest columnists Frederick Kagan and Maseh Zarif roll out a prosecutor’s case for attacking Iran, then retreat and assert that they are doing no such thing, but simply stating the terms of debate on the matter. Not to be outdone, the paper’s opinion editors trot out an unsigned column that faults "wishful intelligence thinking" in spy agencies that fail to recognize the nuclear peril in Iran. Yet similarly, the editors cannot bring themselves to explicitly urge the president to declare war and attack. So which is it — should Obama attack Iran or not? Huh?

The one happy lot is oil traders, who lap up such uncertainty and the resulting profit-making price volatility. In the week that ended Feb. 21, hedge fund managers increased their bets on higher oil prices by 11 percent from the previous week to a nine-month high, according to the U.S. Commodity Futures Trading Commission, quoted by Bloomberg. The number of long contracts rose to 259,162, the CFTC said.

Over at the Council on Foreign Relations, Michael Levi writes that such times of high gas prices have a habit of "bringing out the hidden energy pundit in all of us." If that is true, we appear to be in for a long period of energy punditry.