Electric cars flood the roads. Green energy is fueling a record amount of power generation. The United States has passed the largest set of renewable energy incentives ever.
However, oil, the scourge of environmentalists and the engine behind global warming, dominates geopolitics and the escalating war in the Middle East, as it has for the past 75 years.
The Hamas terrorist attacks on Israel on October 7, which led to the Israeli attack on the Gaza Strip that had just begun, were not about oil. But oil is how the United States and dozens of other countries respond and reorganize for a world in which the Middle East remains a troublesome region that no one can ignore.
The new war between Israel and Hamas and its repercussions on oil markets directly affect President Biden’s re-election prospects. This, in turn, may determine the outcome of the Russia-Ukraine war, which may affect how China thinks about the pros and cons of invading Taiwan. This puts fossil fuels at the heart of a heated struggle between authoritarianism and Western-style democracy, whatever that means today.
Iran the world The eighth largest oil producerIt is the focus of this struggle. The theocratic Islamic State is a sworn enemy of Israel, supporting, funding and training Hamas, along with Hezbollah in Lebanon and other militias in the Middle East that have Israel in its crosshairs. A large portion of the money comes from Iranian oil revenues. It is not clear that Iran had a direct role in the October 7 attacks on Israel. However, Iran benefits from anything that weakens Israel and its alliances with other Middle Eastern countries, because this strengthens Iran’s influence in the region. This is why Iran’s state-controlled media celebrated the attacks on Israel.
Iran may not attack Israel directly, but it can influence or control whether Hezbollah does so, and that is the quickest path to a broader war. The United States is sufficiently concerned about this possibility Expediting attack aircraft and other military assets to the area To warn Iran of the price it might pay if it encourages more war.
Republican Senator Lindsey Graham of South Carolina expressed the frustration of many when he warned Iran on October 15, saying:If you escalate this war, we are coming for youGraham specifically said he would introduce legislation “to allow the United States to take military action in cooperation with Israel to remove Iran from the oil sector.”
This would actually be a nightmare scenario for Biden and for many Americans. Oil prices have remained relatively stable since the Hamas attacks on Israel, because what has happened so far does not threaten oil production in the Middle East. But escalation would completely change those calculations. It would raise the possibility of new sanctions or military strikes that threaten Iranian oil production. It is possible that Iran will try to respond by attacking oil facilities in Saudi Arabia, which could exacerbate this problem I’ve done it beforeOr trying to prevent oil tankers from transporting oil through the Strait of Hormuz I threatened.
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Iran produces only About 4% of the world’s oilBut this is more than enough to raise prices significantly if there is a threat to supplies – especially if it could affect oil production elsewhere in the Persian Gulf. Traders say oil could easily rise above $150 a barrel if there is an oil war, which could equate to U.S. gasoline prices of $6 per gallon or more. Inflation is already one of Biden’s biggest domestic issues, and rising gas prices during the year leading up to the 2024 election could be devastating for him.
Russian President Vladimir Putin He clearly hopes Biden loses in 2024 to former President Donald Trumpwho promised this Ending the Russian war in Ukraine in one day. Trump is a huge fan of Putin and is supposed to cut US aid to Ukraine. Putin also benefits whenever oil prices rise, as oil is Russia’s most important export, and because high global prices provide more revenue to finance Putin’s wrong war.
He is closely watching Chinese President Xi Jinping, who no doubt wants to know how strong and sustainable the US-led opposition is if he tries to launch a military attack on Taiwan. If Trump wins the 2024 election and the US bails out Ukraine, it could be a signal to Xi Jinping that the US might also ignore Taiwan, if China moves. China – Iran’s largest customer – prefers lower oil prices, because it is the largest buyer of oil in the world. But China, like Iran and Russia, also benefits from anything that weakens the United States, including the energy crisis that has damaged Biden’s standing at home.
This is not necessarily a doomsday scenario. The United States is now the world’s largest oil producer, and we are no longer as dependent on Middle Eastern oil as we were during the energy crises of the 1970s. If the Middle East erupts and energy prices rise, it is possible that Americans will rally behind Biden rather than punish him simply because gas is expensive. If Biden wins a second term, he will no longer have to worry about being re-elected and will have greater flexibility in dealing with all the rogue states attacking Uncle Sam.
Americans sometimes wonder why the United States doesn’t just produce an extra ton of oil and make other producers irrelevant. The reason is that the United States government does not control oil production as the governments of most Organization of the Petroleum Exporting Countries (OPEC) countries do. Private sector companies do this. If there is a shortage that drives up prices, they will dig more because it becomes more profitable to do so. But there are still restrictions on refineries and other parts of the energy infrastructure, which would keep supplies tight and prices high if there was a real crisis.
Saudi Arabia is the second-largest oil producer, and is widely considered to be the largest “swing producer” capable of producing more in a short time. The Saudis cut oil production to keep prices steady around $80 or $90 a barrel. But they can increase the pumps if necessary to keep the world supplied. The Saudis But I don’t like BidenThey may, like Putin, prefer Trump’s return, if they have a say in it.
The United States is not weak either. Biden has tried to move away from the Middle East, focusing more on China and managing a massive war of attrition in Ukraine. Biden miscalculated on Iran, mistakenly believing that its malign influence might diminish if it could evade sanctions and sell more oil. But the blinders have now been removed, and Iran has a lot to lose if it decides to go to war. This always applies to anyone who strikes a match in the Middle East. The frustrating part is that not much has changed.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
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