Oil Speculators: A Force for Peace?

by Charles Goyette

Recently by Charles Goyette: Something Wicked This Way Comes

White House polling must show how badly gas prices are hurting Obama's approval numbers. Badly enough that he's even trying to ease up on attacking Iran.

Here's Obama on the campaign trail: "The problem is ... speculators and people make various bets, and they say, you know what, we think that maybe there's a 20% chance that something might happen in the Middle East that might disrupt oil supply, so we're going to bet that oil is going to go up real high. And that spikes up prices significantly."

While blaming economic conditions on speculators is the common stock in trade of demagogues and politicians of all stripes, what is the president actually saying?

People who need energy to keep their businesses working, business that make modern life possible, look around at world events and grow concerned that the U.S. government and others may conspire to interrupt the flow of oil. Behaving like good stewards of their enterprises, they and their agents seek to assure needed oil supplies in an uncertain future by contracting for tomorrow's oil needs today.

While Obama deprecates the activity, saying that those trying to prepare for future conditions, are "betting," most oil users would actually prefer stable prices and would just as soon forego the guessing game about future prices. It's a game that costs them if they are wrong and only allows them to stay in business if they are right. Most are happy that someone – those speculators politicians love to vilify – are willing to take on the risk of being wrong about future price movements for the rewards of being right. The real oil users can then count on liquid markets when they need them and keep their attention – and their capital – focused on delivering the blessings of modern life instead of betting on the movement of prices.

And there is something wrong with this? Hold the phone a moment!

It's not as though those seeking to secure oil for their future needs are making something up. They're not concerned about some fantasy development, some exogenous agent like space aliens appearing out of nowhere to suck up all of earth's oil. This isn't science fiction. They're trying to keep things working in the face of very real and very familiar government threats to our way of life.

Maybe they should be praised, not condemned.

While one administration bureaucrat has claimed there is a "Wall Street premium" on the price of oil, it takes government to make a war. Speculators trying to anticipate future prices in the event of a war don't impose embargos. Nor do they launch airstrikes.

In The Dollar Meltdown, I estimated that during the constant saber rattling and elective wars of the Bush years, the fear premium on the price of oil may have run from $20 to $40 a barrel, depending on developments. It was, in any case, a huge transfer of wealth from the American people to the oil sheikdoms, Putin's Russia, and Chavez's Venezuela.

If Obama is prepared to further de-capitalize the American people and deliver another blow to an economically-depressed world by supporting an Israeli strike on Iran and risking the closure of the Strait of Hormuz, isn't it a good thing that he has to confront at least some of the cost of such recklessness?

He's a politician. He should pay a political price.

George W. Bush never did. But we would be better off economically if he had to reckon with the price for his elective war.

Might Bush have been dissuaded from his unnecessary war if he had known that it would cost not under $50 billion, as his administration claimed, but more like $5 trillion?

Would Bush have given up plans for his counterproductive war on Iraq – a war that has only consolidated Iran's Shi'ite power bloc in the region – if he had known that he would preside over an explosion of the nation's visible debt from $5.7 trillion to $10.6 trillion?

Would Bush have foregone his wasteful war justified by forged documents and phony intelligence if he had known that its cost would help trigger the steepest downturn in America since the Great Depression, even as the cost of the Vietnam War helped create the stagflation decade of the 1970s?

If he had known the costs and the outcome, would Bush have been capable of better decisions?

Nah. Bush was not capable of forethought or making wise decisions. When he ran for reelection in 2004, Americans still hadn't come to terms with the monstrosity of his bogus war. And his opponent, John Kerry ("Reporting for duty!") wasn't willing to risk defeat by opposing the prevailing war fever. Had he done so, he would have still lost in 2004, but could have easily been elected on the "told you so" platform by the time people began seeing through Bush's war in 2008.

Whatever Obama's real view about war with Iran, he at least has enough foresight to know that it will result in even higher gas prices.

At his first press conference of 2012, Obama responded to a question about gas prices with a question of his own, asking the reporter, "Do you think the President of the United States going into reelection wants gas prices to go up higher? Is there anybody here who thinks that makes a lot of sense?"

Obama knows that the price at the pump can cost him the election.

If it is wariness about the political cost of higher oil prices that has Obama preferring "engagement" to bombing Iran, it is a good thing. If it is speculators buying oil against future possibilities that keep Obama from reacting as Romney and the neocon Republicans egg him to start another needless and ruinous war, then we owe speculators a debt of gratitude.

Copyright © 2012 Charles Goyette

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