Are You Prepared for $200 Oil?

Are You Prepared for $200 Oil?

Wednesday, January 11, 2012

Executive Summary

• Higher oil prices caused by an Iran conflict could very well be the trigger for the next major economic downturn
• Where oil prices will likely go, and how quickly, if a conflict erupts in the Persian Gulf 
• The prudent steps you should take now, in advance of a potential conflict
• How the financial markets will react, and likely safe havens
• Why a war with Iran will be much messier than the Iraq war

Part I: Iran: Oh, No; Not Again

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: Are You Prepared for $200 Oil?

In Part I, we connected a few dots and made the point that Iran remains the last unconquered oil province within the last great deposit fields left on the planet. Perhaps it is coincidence that Iran now finds itself in the crosshairs, but that is unlikely. Instead, the oil treasures of the Middle East remain the last great prize, and Iran is unlucky enough to be standing in the way.

Once one understands where we are in the Peak Oil story, all of these maneuvers make sense and conform to a brutal but coherent logic: If oil supplies are dwindling as fast as the data suggests, then controlling the last, best supplies will be considered essential by every interested party.

While such speculation is interesting to engage in, there’s really nothing you or I can do to alter these events. Instead, our job is to prepare as best we can.

The larger set of world events is grinding inexorably towards a lower standard of living, with the squabbling at present really being over who eats the first sets of losses. However, the next leg of the downturn will be precipitated by some event, and a war with Iran that spikes oil prices would be a perfect catalyst.

What Happens If…?

What might we expect from a war with Iran? The true impact depends on just how long the war goes on and for how long the Strait of Hormuz remains effectively closed to oil tankers. I say ‘effectively’ because even if the US military feels it has everything under control, the insurers of the ships may have a different perception of the situation and refuse coverage even after the military declares that things are acceptable for sea traffic.