How Will Oil Prices Respond to the Iran Deal?

Sunday, December 1, 2013

The Huffington Post ran a story last week entitled, Why Oil Prices Will Rise Despite Iran Deal. Here's why: Iran and Saudi Arabia are enemies, and Saudi Arabia will probably cut their oil production drastically in order to punish the U.S. for making the deal with Iran.

So even though Iran will add over a million barrels of oil per day to the world market (which would lower oil prices if nothing else happened), Saudi Arabia could drop their production by two million barrels a day, which would raise oil prices and hurt the world's economy, including America's.

The United States doesn't import much oil from Saudi Arabia, but that doesn't matter. Oil sells for the global price, no matter where it is produced, and a higher global price depresses and slows the American economy (and the rest of the world's). When oil prices rise, so does America's unemployment rate.

Saudi Arabia can deliberately threaten the U.S. economy, and deliver on the threat — not because they produce a large percentage of the world oil supply, but because in our fuel market, gasoline has no competition. Saudi Arabia does, in fact, produce a large percentage of the world's oil, but that's not the reason they can inflict damage on the American economy.

Even though it would be very easy and inexpensive to introduce robust fuel competition in America, we have failed to do so and that is the only reason we are vulnerable to Saudi Arabia's threats. If we had fuels available to compete with gasoline at the pump when Saudi Arabia raises the price of oil, drivers would simply switch to other fuels like methanol and ethanol, both of which are made in America from abundant American resources and could sell for far cheaper than gasoline right now.

Is it okay with you that the economy of the greatest country on earth is subject to the whim of a small, backward, misogynistic monarchy? I hope not. Our intolerable vulnerability can be completely eliminated, and within a very short time. The answer to oil's monopoly is fuel competition. The fastest way to achieve it is with the Open Fuel Standard. Please let everyone know. We need to make this happen quickly.

Author: Adam Khan, the co-founder of OpenFuelStandard.org and co-author of the book, Fill Your Tank With Freedom. 

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