Oil Speculators: A Force for Peace?

Oil Speculators: A Force for Peace?
April 24, 2012

White House polling must show how badly gas prices are hurting President Obama's approval numbers. Badly enough that he's even trying to ease up on attacking Iran.

Here's Obama on the campaign trail: "The problem is . . . speculators and people make various bets, and they say, you know what, we think that maybe there's a 20 percent chance that something might happen in the Middle East that might disrupt oil supply, so we're going to bet that oil is going to go up real high. And that spikes up prices significantly."

While blaming economic conditions on speculators is the common stock in trade of demagogues and politicians of all stripes, what is the president actually saying?

Good Stewardship

People who need energy to keep their businesses working look at world events and grow concerned that the U.S. government and others may interrupt the flow of oil. Behaving like good stewards of their enterprises, they and their agents seek to assure needed oil supplies in an uncertain future by contracting for tomorrow's oil needs today.

While Obama deprecates the activity, saying those trying to prepare for future conditions are "betting," most oil users would prefer stable prices and would just as soon forego guessing about future prices. It costs them if they are wrong and only allows them to stay in business if they are right. Most oil users are happy that someone is willing to risk being wrong about future price movements for the rewards of being right. The real oil users can then count on liquid markets when they need them and keep their attention – and their capital – focused on delivering the blessings of modern life instead of betting on the movement of prices.

Real Risks

It's not as though those seeking to secure oil for their future needs are making something up. They're trying to keep things working in the face of real and familiar government threats to our way of life.

While one administration bureaucrat has claimed there is a "Wall Street premium" on the price of oil, it takes government to make war. Speculators trying to anticipate future prices in the event of war don't impose embargoes. Nor do they launch airstrikes.

In The Dollar Meltdown, I estimated that during the constant saber rattling and elective wars of the Bush years, the fear premium on the price of oil may have run from $20 to $40 a barrel, depending on developments. It was, in any case, a huge transfer of wealth from the American people to the oil sheikdoms, Putin's Russia, and Chavez's Venezuela.

Real Costs

If Obama is prepared to further de-capitalize the American people and deliver another blow to an economically depressed world by supporting an Israeli strike on Iran and risking the closure of the Strait of Hormuz, isn't it a good thing that he has to confront at least some of the cost of such recklessness?

He's a politician. He should pay a political price.

George W. Bush never did. Might Bush have been dissuaded from his unnecessary war if he had known it would cost not under $50 billion, as his administration claimed, but more like $5 trillion?

Would Bush have given up plans for his counterproductive war on Iraq – a war that has only consolidated Iran's Shi'ite power bloc in the region – if he had known he would preside over an explosion of the national debt from $5.7 trillion to $10.6 trillion?

Would Bush have foregone his wasteful war justified by forged documents and phony intelligence if he had known its cost would help trigger the steepest economic downturn in America since the Great Depression, even as the cost of the Vietnam War helped create the stagflation decade of the 1970s?

If he had known the costs and the outcome, would Bush have been capable of better decisions?

When he ran for reelection in 2004, Americans still hadn't come to terms with the monstrosity of his bogus war. And his opponent, John Kerry ("Reporting for duty!") wasn't willing to risk defeat by opposing the prevailing war fever. Had he done so, he would have still lost in 2004 but could have easily been elected on the "told you so" platform by the time people began seeing through Bush's war in 2008.

Whatever Obama's real view about war with Iran, he at least has enough foresight to know it will result in even higher gas prices.

Cautious Conduct

At his first press conference of 2012, Obama responded to a question about gas prices with a question of his own, asking the reporter, "Do you think the President of the United States going into reelection wants gas prices to go up higher? Is there anybody here who thinks that makes a lot of sense?"

If it is wariness about the political cost of higher oil prices that has Obama preferring "engagement" to bombing Iran, it is a good thing. If it is speculators buying oil against future possibilities that keep Obama from reacting as Romney and the neocon Republicans egg him to start another needless and ruinous war, then we owe speculators a debt of gratitude.

Charles Goyette (charlesgoyette@cox.net) is the author of The New York Times bestseller The Dollar Meltdown. His new book is Red and Blue and Broke All Over: Restoring America’s Free Economy.