Benny Morris, the Presidential Election, and the Price of Oil

Crude is down again today following on last week’s losses. The rapid drop price should offer some relief at the pump and may or may not signal the end of the petroleum bubble. Lower prices, however, could be fleeting.

Last week, the New York Times published an awful Op-Ed by Benny Morris. While I disagree heartily with Mr. Morris’s analysis, he reiterates what has become a common timeline for an Israeli attack on Iranian nuclear interests:

The period from Nov. 5 to Jan. 19 seems the best bet, as it gives the West half a year to try the diplomatic route but ensures that Israel will have support from a lame-duck White House.

The assumption here is that the Bush administration is likely to be more supportive of a strike on Iran than either an Obama or McCain administration; additionally, it is assumed that the Israelis would not want do anything that might impact the American election in such a way that hinders future Israeli freedom of action. Any strike by Israel (or anyone, for that matter) against Iran is likely to cause a temporary spike in crude prices. Iran’s reaction to a strike will govern the extent and longevity of price increases.

While the argument that Israel is likely to attack Iran after the American election and before the inauguration of a new president is convincing, the Bush administration has taken some steps recently that temper the likelihood of an Israeli strike. Notably, the Bush administration has signaled that it may open an Interest Section in Tehran under the umbrella of the Swiss Mission. Interest Sections can take many forms and may not even host American diplomatic personnel. However, if the United States does open an Interest Section in Tehran with American personnel it is unlikely that the United States would authorize an Israeli strike – given the Islamic Republic’s history with American diplomatic personnel, American coordination with a strike that would put those personnel in the position of being held hostage or harmed seems rather unlikely.

With American diplomats on the ground the Israelis are left with the options of striking Iran without American coordination or waiting for those newly deployed FSOs evacuated. Both options are poor for a number of reasons so it would seem that the opening of an American Interests Section in Tehran staffed by Americans will indicate that an Israeli strike is less likely – and should further depress crude prices.

On the other hand, if the United States chooses not to open an Interest Section before the election in November, look for crude prices to begin trending upward as fears of an Israeli strike renew.

Why oh why did the New York Times publish Benny Morris?

What Benny Morris writes in today’s New York Times is madness. Mr. Morris not only suggests that Israel will strike Iran – and that this will be good for Israel, Iran, the United States and the Middle East – but also recommends this course of action! His thousand word prescription is predicated on the notion that should Iran acquire a nuclear weapon it will use it immediately.

That is to suggest that Iran is 1) going to become the first nation to use a nuclear weapon against another nuclear power and 2) take action directly counter to its interests. Iran may be many things but its leadership – the actual leadership, not President Ahmadinejad - is neither suicidal nor irrational. The logic of nuclear weapons is ultimately the logic of establishing a defensible position.

The mullahs having acquired power in the Islamic revolution have shown absolutely no interest in giving up that power – to either domestic challenger or foreign challengers. From their perspective, Iran’s position is tenuous. The United States occupies nations to its east and west. Israel, protected by the United States, is the only nuclear power in the region and seemingly acts with impunity. Having nuclear weapons not only vaults a nation into the ranks of ‘grown-up nations’ but affords that state a measure of security unparalleled in history. Additionally, Iran’s treatment by the west along with India’s accommodation by the United States has demonstrated that the Nuclear Non-Proliferation Treaty is defunct: Iran is denied the right to development of nuclear power enshrined in that treaty and India, having illicitly developed nuclear weapons, is guaranteed nuclear power.

If, as seems likely, Iran’s goal is a nuclear weapon it seeks one so that the state and the regime are protected from outside aggression. It is difficult to describe how unlikely and inflammatory it is to suggest that Iran, having acquired a nuclear weapon, would strike Israel first. The leadership in Tehran knows as well as the rest of the world that such action would be suicidal and would certainly invite nuclear retaliation by Israel and the deposition of the mullahs.

Given the current climate and Israel’s justified fear of the bellicose rhetoric coming from the figurehead President in Tehran, the last thing the region needs is an opinion piece in the New York Times suggesting that 1) Israel should attack Iran and 2) if Israel doesn’t attack Iran, Iran will attack Israel with nuclear weapons. Rather, the United States should be hopeful that the calming steps taken by the Bush administration in recent days will lead to reduced tensions and an Iran than no longer feels impelled by security fears to acquire nuclear weapons.

Juan Cole Advises Barack Obama

Juan Cole has an excellent – and friendly – critique of Sen. Obama’s Op-Ed in the today’s New York Times. Most interesting is the portion of the critique that deals with Afghanistan, which Prof. Cole describes as, “far more unwinnable even than Iraq.”

The overall pessimism of Prof. Cole’s post is striking. It reminds me of my reaction, in the days following September 11, when it became clear that the United States would invade Afghanistan. My conception at the time was of a Soviet-style invasion which struck me as folly. The initial success of our Afghan incursion, relying on Special Forces, air power, and Afghan allies, convinced me for a time that the United States had an honest chance at success – success being the establishment of an Afghan state under the control of a US-friendly central government. As time went on and Afghanistan became an afterthought, garnering too little of every category of resource needed to ensure American success, I fell victim to this notion – that Prof. Cole rightly debunks – that the United States could be successful in Afghanistan so long as more American/NATO troops and resources are applied to the problem.

And this is the real critique offered by Prof. Cole of Sen. Obama. Sen. Obama writes that there are real differences between himself and Sen. McCain on the war in Iraq, and the exploration of those differences should figure prominently in this campaign rather than exchanging “false charges about flip-flops and surrender.” While this may be true, it does not get to the heart of what’s wrong with this campaign season, nor will exploring the differences between McCain and Obama’s positions provide this nation with policy and direction it so desperately needs. The war in Iraq like so many of the issues facing our country is not a binary issue – it is not that simple, nor are there solutions of equal merit being forwarded neatly by the Right and the Left. Afghanistan, like Iraq, is a muddle and to present it as something so easily solved by adding two or three combat brigades to the mix is a drastic and perhaps dangerous oversimplification.

I was struck by Sen. Obama’s inclusion of Afghanistan in the list of threats we face. I could not make sense of it as Afghanistan as a nation-state shows wholly no ability to hurt the United States. That said, if this Op-Ed is truly representative of Sen. Obama’s mindset and the type of policy we can expect from his camp – much like the nonsense that comes from Sen. McCain’s camp – then perhaps it was an apt inclusion and I should echo Prof. Cole: Beware.

The challenges we face as a nation are grave. Some are even existential. For our nation to overcome them perhaps we don’t need lip service being paid to new kinds of politics, perhaps we need a very old politics marked by nuance and wisdom. I fear instead we look forward to four months of sound bite volleys.

Asked to Leave

In the last couple days multiple Iraqi government officials, including Prime Minister al-Maliki have begun saying aloud that any Status of Force Agreement, which would almost certainly have to be approved by Iraq’s Parliament, would need to include a timetable for withdraw of U.S. forces. It, as always, includes the caveat that actual timing would be contingent on the situation on the ground, but this is perhaps the most explicit indication from the Iraqi government that our time in their country as an occupying force is on the downslope.

Our State Department met these reports with some spin. According to Reuters, “In Washington, John Sullivan, a spokesman for the State Department's Near Eastern Affairs bureau, said: ‘We believe that the prime minister's statement and the national security adviser's statements reflect shared goals of the United States and Iraq.’”

I find this statement by Mr. Sullivan hard to believe. It seems that the high-ranking members of the Iraqi government are asking for withdrawal. It should also be noted that the recently quiet, but highly influential Shi’ite cleric, Grand Ayatollah Ali al-Sistani, has been consulted on this matter.

These public statements from the highest levels of Iraq’s government and the gentle pushback from our government begs a very important question. If we are being asked to leave, why aren’t we preparing to leave?

Let me qualify that statement slightly. It has long been assumed that troop levels will decline in 2009, both from strain on the military and personnel changes at 1600 Pennsylvania Ave. I am also assuming that behind closed doors (where the current administration does far too much of its work) talks of withdrawal aren’t taking place. Taking these assumptions into consideration, I still can’t help but wonder why we wouldn’t seize upon this opportunity. No withdrawal would be an expeditious withdrawal, but perhaps we should let Iraq handle its own affairs completely and totally.

As I am apt to do, I will play devil’s advocate for a moment and ask some of the questions I would suspect reside in the minds of those that would insist we stay a while longer in Babylon.

Won’t our departure simply lead Iraq into chaos? Won’t militants simply lie low until we’re gone and then seek to overthrow the duly elected government?
Our departure may lead to chaos, but we can’t hold a foreign country together. In the Balkans we, with the extensive help of NATO, helped buy the oppressed time to disengage and uproot and divide. One can debate the merits of the ethnic countries that sprung up in the aftermath, but no similar effort is being made in Iraq. In fact, it would appear that Iraq policy has been adrift in the sea of status quo for over a year now. Things are holding together, tenuously at best, but they are holding together so why mess up a good thing?

And even if the current situation is tenuous it is becoming clear that our prolonged presence is doing little more then perpetuating an untenable state. I ask the question, so what if Iraq goes to hell after we leave? The human suffering could be immense. The resulting government could be closely allied to Iran and all the bit as roguish as Saddam’s regime, but at least American soldiers wouldn’t be dying to maintain the status quo. Also, we need to remember that a violent and protracted civil war is not a forgone conclusion. We also need to remember that if you feel that civil war is a forgone conclusion, can we possibly stay there long enough to make it not so?

We have reached a point where the only choice is to disengage and hope the Iraqis impress us after we’re gone. It is becoming very clear there is little more we can do for them.

What about American business interests (read: oil) in Iraq?
The American military is not in the business of protecting by force the investments of American companies. If large oil companies want to operate in Iraq, they will and they can negotiate directly with the Iraqi government. We have been told, and I am inclined to agree, that the invasion was never about oil. Yes, I know about the no-bid contracts, but I am unconcerned as they are short-term and there are compelling reasons for them to be instituted.

Let oil companies operate at their own risk. If current prices of crude are any indication, oil has reached its peak of ubiquity in the world and now begins the long decline. Keeping 130,000 soldiers in Iraq to keep an open supply of oil is to perpetuate the oil dependency we have endured for more then a generation.

What about pride? We can’t retreat, can we?
Presumptive presidential nominee John McCain a few weeks back in response to some anti-war hecklers declared that he would never surrender. The resoluteness in his voice was frightening to me. He wants victory. Everyone wants victory. I want victory in Iraq, but about 3 or 4 years ago we lost track of what that was. Have you heard details about what victory now means? Liberate the people of Iraq. Check. Support a democratically elected government. Check. Write a new constitution, approved by the people. Check. Yet, those accomplishments didn’t achieve “victory” because there is still extensive violence. So my question to all in politics is what is victory in Iraq?

I contend that “victory” such as it is has been achieved, and now all that is left is to disengage. It’s not retreat. We were not bested; we have simply exhausted the work which we can do.


There have never been easy answers in Iraq and when to leave has been one of the more elusive answers to find, but we have an opportunity now. The Iraqi government has asked us to set our departure date. I say we take them up on their offer and right now really start considering how and when we will disengage. We broke, we bought it, it sounds like the Iraqis want to buy it back. It’s their country, shouldn’t we let them?

Oil Prices Drop Due To Sunshine

“Oil Drops $6 on Easing Storm Worry”

That’s a headline from Reuters. Here’s the lead:

LONDON (Reuters) - Oil tumbled to below $136 on Tuesday, dropping by about $10 this week, as the dollar gained and concern eased over an Atlantic hurricane.

Reuters would have you believe that oil has dropped nearly $10 in the last two days because, in part, the fear of a hurricane in the Atlantic is abating. This defies logic and credulity.

For this to be true would require oil to have been elevated by $10 based on worries of the storm in the first place. This is just not the case. While the price of crude increased at the same time as the storm began to form, the causal linkage is not born out. What’s more disturbing is that the article goes on to ascribe the increased price to rising tensions over the Iran’s nuclear program as well. This taken with the continuing protests that crude prices are so high because of supply and demand – despite the fact that demand has been reduced and that, over the last several years price has exponentially outstripped demand increases – is beginning to reveal the severe limitations that conventional reporting services are faced in explaining petroleum price formation.

If crude prices are being artificially inflated by speculation and we are witnessing a petroleum bubble, then sudden and sharp decreases in price may occur as the bubble bursts. These decreases will be due to a precipitous sell-off by speculators who have decided that price is too high or that it simply won’t continue increasing.

It’s unclear what it will take to cause this and it may not be strictly speaking rational, but the price reduction will be quick and prices may reduce to as low as $70 or $80/bbl.

Petroleum Bubbles

Yesterday Saudi Arabia hosted a forum of major crude producers to discuss production levels and the high price of oil that the American consumer is all too familiar with. The US Secretary of Energy, Sec. Bodman, remarked at the forum that energy prices are being driven by supply and demand – that the high cost of crude can be attributed to increased worldwide consumption and alleviated by increased production. Despite consistent statements by the Saudi oil minister, Ali al-Naimi, the Saudis agreed to increase July’s production levels and continue to increase production as needed.

Crude prices are remaining strong today – many observers are now pointing at attacks in Nigeria that have shut-in more crude than the promised Saudi production increase will deliver. But these attacks don’t explain how we’ve arrived at $135/b oil. Nor can supply and demand – market fundamentals – as Sec. Bodman pointed to yesterday adequately explain the near doubling of crude prices in less than a year. Likewise there have not been significant fundamental changes to the overall security picture that can account for the precipitous rise in crude prices in the last year. While all these factors have certainly contributed to the rising cost of crude, most notably in the increase from $35/b to the $70-75/b range, an additional factor has been driving the cost of oil for at least the last twelve months. That factor is speculation.

It is important to understand how speculation occurs and how it can influence price structures. I think often people are left with the impression that an oil company, say BP, owns oil fields, tankers, refineries and gas stations and is itself responsible for extracting the oil from the ground, moving it onto a tanker, shipping it to a refinery and turning it into gasoline. This leads people to believe that oil companies are fixing prices. Other times people believe that OPEC is responsible for all the oil in the world and can arbitrarily cut supply to increase price – this leads people to blame Saudi Arabia for high crude costs. The market, unfortunately, is much more complicated than either of those scenarios.

Basically, oil can be purchased as a future contract in 1000 barrel units with a particular delivery date, like July 1. These contracts are offered by the owners of the oil when it is extracted, owners like Saudi Aramco or BP or Iraqi National Petroleum Company or Big John’s Mom & Pop Crude. Futures are intended to be bought by refineries so that there is some stability in price between the time it is removed from the ground and the time - weeks later - when it arrives at a refinery to be converted into gasoline. These futures, however, can be purchased and resold by anyone. When a market is tight, as the oil market has been for the last several years, futures being purchased by outside entities that believe they can buy a future today only to sell it for a profit tomorrow artificially inflate demand and drive price up. These futures are subsequently sold to refineries at a price level that does not reflect the commodity’s fundamentals but that yields a profit to the intermediary. Given a sufficient amount of money and number of non-refining entities purchasing and selling futures contracts, this speculation can become the driving force behind price formation.

Welcome to the petroleum bubble. It’ll burst eventually, but it’ll take more than additional Arabian Heavy to pop it.

Krauthammer is still there!

For the first time in ten months I read the Opinion pages of the New York Times and the Washington Post today. I sipped my first cup of coffee as I took in David Brooks and Charles Krauthammer. I should have waited until my second cup.

Krauthammer is still there on the Washington Post’s Opinion page lying to America. Today he was offering John McCain campaign advice, really though, he was lying about the state of affairs in Iraq. His aren’t big lies; he just applies a high polish to reality in such a manner as to obscure indisputable truths.

The fact is that our public forum is no longer, and may only in my imagined memories have been, equipped to handle the nuanced debate required to discuss the War in Iraq. Rather than a debate about the manner and conditions that will accompany the withdrawal our nation must see, it has been a debate about staying for 100 years or leaving immediately. Neither of these hyperbolic positions duly addresses the problems we face. But our national problem in this discussion goes beyond this, we have commentators who dominate the public sphere that willfully ignore, or lie, about the nature of events on the ground in Iraq, to wit: Krauthammer lists the various successes that the Iraqi government has witnessed since last September. In these he includes, “6. Parliament passed the other reconciliation benchmarks.”

Yes, the Iraqi Parliament has passed some of the reconciliation benchmarks. It has not, however, passed all of them: namely, the Iraqis have still not passed the election reform law so that the status of Kirkuk can be resolved. Nor have they settled on the distribution of petroleum resources. In fact, while the attacks on US and Iraqi forces have subsided, the Maliki government has been unable to take advantage of the so-called surge and achieve the political reconciliation the surge was designed to allow. That government has left the most difficult decisions before it unresolved.

Krauthammer also states that Maliki’s government has taken on Shiite militias, but implies that he has taken on all Shiite militias. This is of course nonsense. While there can be no denying the improbable success the Iraqi Army has enjoyed in Basra – and yes, that was a success – and Sadr City, the government has simply become reliant upon the Badr brigade, the Shiite militia loyal to Abdul Aziz al-Hakim, who spent his time in exile in Iran and whose militia has been responsible for private prisons and torture chambers as well as death squads.

Iraq is not and has never been a simple place, nor from our perspective a simple problem. Our nation will soon be faced with many such and more complicated, intractable problems. Our political leadership and our media are ill-equipped for the fast approaching future – it does us no good to yet have the pages of the New York Times and the Washington Post dominated by Charles Krauthammer and his half-truth telling ilk.