Iran’s unrest won’t lead to higher oil prices

Writing about last week’s presidential election in Iran, the Wall Street Journal’s Bret Stephens observed that the plebiscite was “so transparently rigged that the only serious question is whether the regime even bothered to stuff the ballot boxes.” President Barack Obama joined in with his own criticism, expressing his “deep concerns about the election.”

Of perhaps greater concern to the average American is whether there’s an oil story behind a vote that seemingly few people take seriously. Specifically, could problems in Iran lead to another oil spike that would show up in higher gasoline prices?

Although the answer is likely no (the price of a barrel of oil has fallen 4 percent since the elections), there are a few scenarios that might on their face impact oil supply.

The first one concerns Iranian oil exports, and whether crude will continue to flow from its ports despite internal unrest. Logic tells us that it will.

The reasons for this are basic. As much as oil lubricates our — and the world’s — economy, Iran needs foreign exchange far more than the world needs its oil. Especially considering the aforementioned internal unrest, the last thing President Ahmadinejad needs right now is a dollar shortage amid persistent questions about the veracity of the Iranian vote. Conclusion? Iranian oil will flow.

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Assuming a scenario whereby violence leads to a shutdown of Iranian oil ports, is this something that should concern us? In the near-term maybe, but this wouldn’t materially impact oil prices over the long-term; the reason being that if Iranian producers bring less oil to market, other OPEC countries will gladly increase oil exports in order to fulfill their own needs with regard to foreign exchange.

But what if President Obama turns up the heat on Iran, and specifically on Ahmadinejad, over last Friday’s vote? Couldn’t Ahmadinejad retaliate by refusing to allow Iranian oil sales to U.S. interests?

The above is not outside the realm of possibility, but it’s also wholly irrelevant to the price of a barrel of oil. For one, the majority of foreign oil that reaches the U.S. comes from Canada.

Secondly, while the notion of an “embargo” is at first blush a bit scary, the greater truth is that embargoes of any kind are a major economic myth. Put simply, embargoes aren’t.

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