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.