Monday, March 10, 2008

Revisiting Profits of Instability and Extortion

A couple of years ago, I did some quick calculations at what the US invasion and occupation was doing to the oil market via the direct fear premium . Updating those assumptions with a little bit more depth, we get a more useful number. Assuming a $10/bbl risk premium and a short term elasticity of demand of .10, the Iraq War has pumped an extra $30 to $60 billion dollars per year into Russia's coffers, and $40 to $70 billion dollars per year into Saudi coffers. The rest of the price appreciation has been a combination of tight supply/demand, and a weakening dollar, with the potential of Peak Oil sitting atop of any major net production increases.

The results --- a Russia that is flush with money who sees itself as a great power with a recently embarrassing decade or two instead of a weak power with a grandiose past, and the OPEC-11 running massive current account surpluses. Fairly predictable that a major shooting war in the Middle East will have negative impacts on oil pricing.

BJ @ Northman's Fury saw some vultures circling around this pool of money and making demands at the Astute Bloggers ( I had to make sure this was not a parody site first)

I think that Saudi Arabia and Kuwait and Qatar and the rest of the nations in the region - (including Iran!) - should help underwrite the costs of this heroic and noble effort. They should give the USA $400 billion.

They have the money. Especially now with oil at/near/or over $100/barrel.


ARABS: ARE YOU DOGS, OR ARE YOU HONORABLE MEN? ARE YOU EVEN CAPABLE OF HONOR? THEN SHOW US. Actions speak louder than words. If you don't send us the money, then you have really told us who you all really are: ungrateful dogs.

About the only ones who strategically benefited from the removal of Hussein and continued instability in Iraq is Iran and Isreal. And neither of them have any reason or ability to pay up. The GCC lost a counterweight to Iran's power, Turkey is routinely launching division sized raids into Kurdistan, and Syria and Jordan are facing mass refugee movements. Even the extra revenue that is being derived from a war that most countries did nothing to get in the way of, but little to support is insufficient to provide the extortion payment that the Astute Bloggers demand.

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