Guest Post: Want to Put Iran Out of Business? Here's How

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Want to Put Iran Out of Business? Here's How

Those attempting to pressure Iran by increasing "tensions" and thus the price of oil have it precisely backwards. The one sure way to fatally destabilize the Iranian theocracy is to adjust the demand and supply of oil so the price plummets (as it did in December 2008) to $25/barrel, and stays there for at least six months.

It has been estimated that the Iranian theocracy cannot fund its bloated bureaucracies, military and its welfare state if oil falls below around $40-$45/barrel. Drop oil to $25/barrel and keep it there, and the Iranian regime will implode, along with the Chavez regime in Venezuela.

Saber-rattling actually aids the Iranian regime by artificially injecting a "disruptive war" premium into the price of oil: they can make the same profits from fewer barrels of oil.

The way to put them out of business is drop the price of oil and restrict their sales by whatever means are available. They will be selling fewer barrels and getting less than production costs for those barrels. With no income, the regime will face the wrath of a people who have become dependent on the State for their sustenance and subsidized fuel.

How do you drop oil to $25/barrel? Easy: stop saber-rattling in the mideast and engineer a massive global recession with a side order of low-level trade war. Though you wouldn't know it from the high price of oil, the world is awash in oil; storage facilities are full, and production has actually increased a bit in North America.

Long-term, Peak Oil is a reality; but in the short-term, production is more than adequate to meet recession-suppressed demand.

The way to drop oil from $100/barrel to $25/barrel is to crush demand via global depression. Let's face it, the global economy is already slipping into depression as credit bubbles pop and austerity and rising debt service expenses bleed off disposable income.

We can nudge the global demand for oil off a cliff with a few other policies, for example, a low-grade trade war with China and Japan. Political leaders everywhere are already itching for a scapegoat, and imports are ready-made and waiting. Slap some heavy tariffs on Chinese and Japanese goods for "dumping" or some other excuse and then the inevitable counter-tariffs will be imposed on U.S. imports. Since U.S. exports to Asia are but a thin slice of imports from those nations, even a low-key trade war will have outsized negative consequences on Asian exporters.

Exports make up a relatively small percentage of Japan's GDP (ditto for the U.S.), but they contribute most of the marginal growth and profits in the Japanese economy. China is hugely dependent on exports and fixed investment in factories and real estate. There is no way the Central Government can spend its way out of the hole created in the Chinese economy as the real estate bubble pops, exports plummet and foreign direct investment dries up.

Europe is already caught in a vice of austerity and rising debt service expenses, so a depression there is already in the pipeline.

In the U.S., a $1 per gallon tax on all liquid fuels would cause short-term pain but would put significant downward pressure on oil consumption. Even without this tax, U.S. consumption will crater as the global economy contracts and Federal spending finally stops rising.

The most important fact about the global pricing of oil is that price is set on the margin. That means that if global demand falls by 10% from 80 million barrels a day (BPD) to 72 million BPD, price will not drop by 10%--it will fall far more.

It is instructive to recall that the mere threat of global depression in late 2008 sent the price of oil under $30/barrel in very short order.

Supply needs to overwhelm demand for at least six months to put the Iranian theocracy out of business. For that, the U.S. needs its exporting allies such as Canada, Mexico and Saudi Arabia to continue pumping even as prices collapse.

As I have often noted in my "head-fake" series on oil pricing, rapidly plummeting prices set up a positive feedback loop which further suppresses price: as regimes like Iran find their income from oil exports falling below their minimum survival level, the only way they can raise cash is by pumping more. This extra oil hitting a market awash in oil will only further suppress price.

Alternatively, they can withdraw their oil from the market in the hope that this reduction in supply will cause prices to rise. Unfortunately for Iran and Venezuela, their production isn't large enough to overcome a 10% reduction in global demand. Six months into their forced-austerity program created by their net income from oil exports falling to zero, they will find the streets filled with hungry, angry citizens.

That will be the end of those regimes.

So the first part of the solution to Iranian hegemony is to actively pursue high-visibility diplomacy in the mideast, repeatedly declare "war is not the answer," etc., and announce some major diplomatic initiatives, even if they are totally for show. That will drop the price of oil $20/barrel in short order.

Then quietly gain the support of the major exporters to continue pumping even as oil prices collapse. The Saudis and other major exporters can survive six months of low income from oil; the Iranians and the Chavez regime cannot.

Lastly, impose austerity, write down debt, squeeze lending, initiate some low-key trade wars and cut Central State spending, all of which will trigger a severe contraction in the global economy and in demand for oil.

Then once the Iranian nuclear threat has been throttled by a collapse in that regime's income stream and by a populist regime change, pro-growth policies can be restarted--and perhaps this time, if debt has been written off en masse and the predatory financial sector is finally allowed to implode in insolvency, they will actually be effective.

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trav7777's picture

stupidest.article.ever.bitchez

CrashisOptimistic's picture

The only thing I can imagine is the blog's business model accepts paid posts by ppl trying to pimp themselves.  This if so profoundly stupid there can't be another answer.

jcaz's picture

"This if so profoundly stupid..."

Uh, ok......

Ahmeexnal's picture

Only thing more stupid is the "peak oil" racket promoted by Al-Gore and other members of the power elite.

CompassionateFascist's picture

Chuck should take up plumbing. Israel wants US to attack Iran, US will attack Iran.

Conrad Murray's picture

No way. The US is the greatest nation of badasses on Earth. The US takes orders from NOBODY, not even chosen people. I dare you to prove otherwise.

Bansters-in-my- feces's picture

Get your head out of your ass and give it a good shake bozo Conrad

There is alot of shit on your face.

Licker.

AldousHuxley's picture

BEST way to put the entire middle east out of business?

 

 

Open all oil pumps, lower oil prices.

Unleash that Saudi 100 year oil reserves all at once.

 

But Iran is an ex Persian empire not just a rogue state. They have their own exchange the iranian bourse, their own global press PressTV, own culture, make their own fighter jets, etc.

 

Instead of invading Iran with US taxpayer funds, US should outsource trading and banking to Iran to do it cheaper and save tax payers some money. Global competition is good for you!

 

quintago's picture

I stopped reading after it go to get oil to $25/bbl.

The country ran on $8/bbl oil a decade or so ago. Taking it to $25/bbl will hurt, but you're dealing with people and nations whose "long term" planning involves more than looking 5 years into the future.

This article is enough grounds to revoke this man's privileges from posting to ZH; truly degrades from the credibility of this site!

Urban Redneck's picture

This will be the moment when the rise of the oceans begins to slow and our planet begins to heal as Unicorns shall shit Skittles...

This childish idiocy belongs in academia, not the big bad world in which the human race actually exists.  The window on this strategy closed a long time ago (in an HFT world).  The increase in the US money supply since the last oil crash makes a repeat of $30USD impossible, even in the face of a Global Great Depression.  Furthermore, the "enlightened" foreign policy of the US--- of burning bridges with the marginal producers, delaying production increases at home and abroad (whether by MIC insertion or withdrawal), alienating historical allies who are larger producers, and aggravating "less than allies" who are the other large producers and consumers significantly reduces the lower bounds to which to the oil price can be driven. 

       

Harlequin001's picture

Conrad, and just how do you suggest that anyone might 'prove' this?

Would the fact that you can't fight wars on your own be sufficient, or that you pay to establish military bases where you can and then pack up and fuck off like good little boys when you're told to?

Every other empire in history has established its authority through the imposition of government, so let's not misunderstand each other, the US takes orders from everybody and pays the bill to boot. You're not a nation of badasses, you're a nation of fucking mugs.

Stop dreaming, your comments are about as useful as the article.

redpill's picture

Drop the price of oil to $25 just like that eh?  I wonder if Chuck was Michele Bachmann's economic advisor...

hwwesq3's picture

How to drop it?

Just like with gold and silver:  the CME repeatedly raises oil margins, day-by-day, to reach 90%.

U.S. strong-arms other exchanges to do the same, with the promise of just a six-month limit.

lolmao500's picture

Yep. Easy to do... raise the fucking margins to 100%.

But low oil prices doesn't make the elite money nor does it make people poorer.

So no.

prole's picture

Technically the easiest way to drop oil to 25 a barrel is to sell oil at 25 a barrel non?

And PS no I don't want to put Iran out of business.
Who the fck wrote this article? Please put yourself out of business TIA.

zhandax's picture

But low oil prices doesn't make the elite money nor does it make people poorer.

BINGO! This is why this plan is a non-starter.  TPTB makes mondo jack with $100 and up oil and they can continue to suck the last few shekels out of what remains of the US middle class.  Add onto this the profit potential from supply and support of a new war effort against one of the 'axis of evil' (profit potential which is probably already factored into many corporate 2012 earnings estimates).  Or they could forgo this by selflessly sacrificing all this profit potential as well as taking a loss on their oil trading and equity positions as global depression engulfs a planet already creating trillions in new funds to stave off said depression.  And don't forget this global depression will further accelerate the shrinkage of the shadow banking derivative pool which will likely take the TBTF banks down for the count.  Do we bet on the buzzards, or do we bet on the saints?  FAIL.

Kayman's picture

"I wonder if Chuck was Michele Bachmann's economic advisor..."

Uh... no.... but he makes a hell of a corndog...

Rusty.Shackleford's picture

The only thing more stupid than that comment is, the idea that we can consume a finite resource infinitely.

Ahmeexnal's picture

riiiiiiiiiiight.....oil is finite because of it's biotic origin from dinosaur carcasses.

You should just STFU.

Mr Lennon Hendrix's picture

So where's the fucking oil?  No one is producing your magic oil, so where the fuck is it?  Does Rotheschilde have it up his ass, because no one knows where it is!

Ahmeexnal's picture

I forgot you are an illiterate sad fuck.
Therefore you have not read up on countless MAJOR oilfields being discovered in Brazil, Norway, Cuba, Mexico, Libya, and countless other places.
So if oil is finite because of it's dinosaur origin (as "peak oil" trolls claim), this means Jurasic Park is based on true facts.
Scientists have been cloning dinosaurs by the millions, killing them, submitting their corpses to high pressures, and obtaining major oil fields as a result.

JW n FL's picture

 

 

http://www.youtube.com/watch?v=wYuLjGQQ-jg

you are correct about us not running out of oil.

Ahmeexnal's picture

Rubin is another Soros puppet just like Michael Moore and Al Gore.
He even uses the same catch phrases like "inconvenient truth".
Let him speak longer and he'd probably spew out "I invented the Internet".

You don't need to "BURN OIL" to transport stuff.

Mr Lennon Hendrix's picture

If A then not B?  Bawhahahahahahahaha!!!!!!!!

LawsofPhysics's picture

Don't waste your time JW, let the fucknuts be fucknuts.  The world will indeed stop using oil with plenty of it still in numerous sources.  Lots of other things are going cause big problems for life (as we know it) on this planet long before the oil is ever gone.

Hephasteus's picture

Spoken like a man that understands big giant lungs and large 4 chamber heart can suck up 10 to 20 times background radiation into your body.

Stamp hoover on your ass and go jogging.

zhandax's picture

The stone age did not end for a lack of stones....

BobPaulson's picture

Show me somebody who has an IQ over 100 who says it's dinosaurs. What are you talking about?

Meanwhile, show me the discovered oil graph versus time with all these new finds compared to the Ghewar, Bhurgan and Cantrell. If you read a little, you will see that peak oil is simply about the oil getting progressively more expensive and EROEI going down, which is exactly what is happening.

Good luck getting that $25 a barrel and required price rigging and conspiracies, jews taking over the world, yadda yadda.

Ahmeexnal's picture

Please look at a graph of oil priced in gold during the last 40 years.

trav7777's picture

JFC, you are stupid.

Show us the "MAJOR" oilfields.  We could use a good laugh on such a grim topic.

Production matters, not exaggerated URR

stupid fuck.

Mr Lennon Hendrix's picture

They're in Candyland.  Before we find the oil, let's get to work finding the magical neverending coco fields!

Hephasteus's picture

But yet he makes a point. It's not hard to imagine a bacteria that converts carbohydrates to hydrocarbons. Why is it so hard to imagine a biological or even purely chemical process that makes the stuff from excess core energy.

Lower Class Elite's picture

It's also not hard hard to imagine skittle-shitting unicorns, a Star Trek replicator, or a fully functional 48" penis. 

prole's picture

Oh the trees are running out!

\Oh the coal is running out!

Oh the oil is running out! We'll all freeze to death walking!!

Beam me up Scotty.......

Rusty.Shackleford's picture

please look at graph of oil production, produced in reality over that same time period. you can cite all the new reserves you want, production has been flat since '05 and is entering decline. 

Canaduh's picture

Countless MAJOR oil fields?? Care to cite just a few?

Most oil is from plant matter and microscopic life in aquatic environments, not 'dinosaurs'.

And your last 2 sentences, wow.

Canaduh's picture

Adding the top-end estimates for all those gives 34.3 billion barrels.

The world consumes 88 million barrels per day, so that's 390 days worth. Not much, in other words.

 The chart at the bottom of the Norway article speaks volumes. All these new discoveries will only delay the inevitable by 10 or 20 years, at best.

Got more?

trav7777's picture

No.  It delays nothing

Those fields will produce probably 500kbpd each.

Oil production IS NOT ABOUT RESERVES, IT IS ABOUT RATE OF EXTRACTION.

Deepwater fields produce at fractions of the rate that can be sustained by surface fields of the same reserves class.  They peak sooner and decline faster.

The 34Bbbl found might at most give us 1.5 or 2 mbpd total.  They are not going to be producing like Cantarell or Prudhoe did.

Rakshas's picture

Calling all NUMBNUTZES - if there be so much fucking oil to be had please let the good folks at the Oil Co's know so I don't have to have my ass go numb sitting in a fucking helicopter seat flying further and further offshore to drill more fucking holes in the ocean ........... YOU STUPID FUCKS.........

 

just sayin'.......

DCFusor's picture

+1 Rakshas.  The truth is always more complex than people re-spouting ditto head trash (spin funded by people who profit from your ignorance).

Here's a place where some real people who kinda do it for a living talk about it - yes, we find fields, some big.  Nothing like Saudi so far, though, and they are not making any more of it.

http://www.theoildrum.com/

Some of the riggers there correctly predicted BP's top kill wasn't going to work and made me a lot of money going short over the labor day weekend awhile back.  Nothing like facts without politics for making basic action decisions.

Grinder74's picture

Obama takes a bath in it every day to wash away that "typical white woman" from his past.

Element's picture

oil is finite because of it's biotic origin from dinosaur carcasses.

 

And which unbelievably stupid statement is stark and glaring evidence you have not the slightest grasp of the origins of oil as 'fossil fuel', and you should be totally ignored and discounted.

I don't know which is worse, that you have no clue at all, or that you have no clue ... that you have no clue.

I'm going with the latter.

Mr Lennon Hendrix's picture

Only thing more stupid is the "peak oil" racket promoted by Al-Gore and other members of the power elite.

Stupidest.comment.ever.bitchez

Economists from every major banking house use emponential reserves when calculating oil prices.  These banks run the power structure, and you think the ppnzi supports peak oil?  JFC!

RockyRacoon's picture

Mr. Smith seems to think that the U. S. does NOT want war.   How the hell else are we going to dig out of this hole that we vigorously dig deeper?  Like Wall Street doesn't make enough playing with the so-called price of oil?  Chuck should get real.   War is on the agenda, and TPTB say so.  QED

Kayman's picture

The price of oil, like the price of money, has nothing to do with supply and demand.

It is whatever the tyrants want to set it at.

Mr Lennon Hendrix's picture

Prices can be manipulated, but they are not determined.  The price of oil affects the dollar.  The dollar afects the euro.  Gold affects them all.  Supply/demand plays a role in this.  The PTB can stick their fingers in the dike, but the dam will explode.

Dr. Richard Head's picture

I take recent actions of fracking as desperation related to pinches in oil availability.  High-pressured brine injections into shale is now causing earthquakes in OK and OH, but the fracking continues either way.  How about US take cues from Canada and drill in the Great Lakes?