×
×
homepage logo

DAVID KRUSE

By Staff | Mar 16, 2012

Iadvised subscribers to cover their

2012 fuel needs in January before

prices surged as it had become difficult

to see any path but one toward conflict with

Iran.

Sanctions imposed on Iran are working

relative to the desired pain intended to be inflicted

upon them. Yet Iran may never respond

to sanctions relative to ending their

nuclear program voluntarily.

They are paying a high price to develop a

nuclear weapon. Awash in oil and gas reserves,

Iran has no practical need whatsoever

for nuclear power. Given almost free natural

gas, a nuclear power plant is extremely

cost ineffective in Iran.

There is no reason other than development

of nuclear weapons for them to mess at all

with nuclear development.

As these people are cut from the same

cloth as those that flew airplanes into the

Twin Towers, the possession of nuclear

weapons by irrational religious leaders contains

a high degree of risk.

The Chairman of the Joint Chiefs recently

said that he believed that Iranian leaders were

rational and therein lies the debate about how

alarmed that we should be over Iranian possession

of nuclear capability and what we

should do about it.

After all, the Soviet Union once had

30,000 nuclear warheads targeted at us and

they were rational enough not to commit suicide.

Israel understandably has a lower pain

threshold than do we as to the degree of risk

they will tolerate. If the sanctions don’t stop

Iran, I would expect that they will and we

will help them.

A month ago the Pentagon didn’t favor

taking military action against Iran and advised

Israel not to do so either. I think they

have evaluated whether they could achieve

the objective of taking down Iran’s nuclear

infrastructure with air-strikes at what cost in

collateral damage of all kinds, including the

Iranian response, and decided that they cannot

guarantee the outcome desired.

The Obama administration has coordinated

an almost unprecedented amount of global

cooperation on sanctions on Iran. The EU

banned buying oil from Iran before Iran

blocked sales to Britain and France.

The only oil customers that Iran has left to

sell to either are really poor at paying, like India,

or will take a huge discount in price like

China to buy their oil.

The Iranian Regime depends on oil revenue

to support itself and it is hurting in

every way. Iranian inflation is soaring and

the government is not able to continue to sustain

food subsides, creating social unrest in

Iran. Iranians are not isolated enough not to

know that their government is responsible.

The Saudis are aligned with us as partners

against Iran. They boosted oil exports 20

percent to backfill any demand unmet due to

the loss of Iranian crude despite direct threats

from Iran not to do so.

The IEA said that the EU can cope with a

complete cut off of Iranian oil. Iran squeezes

its own revenue every time it cuts off a customer,

self-inflicting more

economic pain. Despite all

of that, everyone is afraid

of the impact of the potential

loss of Iranian oil in a

conflict on the oil markets.

A significant amount of

oil passes through the

Strait of Hormuz daily so it

would be the focal point of

a military clash as well as

attacks on Gulf State oil refineries

and pipelines.

And as the tension

builds, everyone wants to own an inventory.

Petroleum companies are not letting the crisis

go to waste raising prices at the pump

even as consumer demand wanes.

The cost of subsidizing protection of foreign

oil imports is going up. While we are

winding down a couple wars, the Pentagon

asked Congress, on Feb. 7, for $100 million

to cover new expenses related to getting

ready to confront Iran. It Congress it needed

the money urgently.

These new funds were on top of $200

million approved primarily to get ready to

confront Iran last summer.

If it were not for oil we would have no

fleet in the Persian Gulf with a second battle

group nearby. What we spent on ethanol subsidies

was pitifully puny compared to what

we spend militarily protecting our foreign oil

supply for which our oil companies pay nothing

for.

At the same time they are removing the

Des Moines’s Air Force F-16 fighter wing

because it is not needed.

Get the point? They don’t have to fly

fighter plane sky-caps over Midwest ethanol

plants to protect them. We have a glut of

ethanol today overflowing storage tanks

pressuring ethanol prices, while gas prices at

the pump are soaring because we have hit the

E-10 blending cap and the government bureaucracy

has moved too slowly and ineffectively

to bring higher ethanol blends into the

market to consumers.

Ethanol plants have negative margins and

some are slowing the grind reducing ethanol

output because they don’t have market access

for it and their storage tanks are full.

When the President says that there is nothing

he can do about rising gas prices, that is

baloney. The ethanol industry stands ready to

do more to meet the nation’s fuel demand so

the Saudis don’t have to.

More ethanol could take 12 to 15

cents/gallon off gas prices very quickly with

an emergency waiver to allow E-15 and

funding for the USDA blenders pump program

now in place.

If they are actually considering going to

war without doing these things, then the Pentagon

should study if our leaders in Washington

are rational.

David Kruse is president of CommStock Investments

Inc., author and producer of The

CommStock Report, an ag commentary and market

analysis available daily by radio and by subscription

on DTN/FarmDayta and the Internet.

Please Enter Your Facebook App ID. Required for FB Comments. Click here for FB Comments Settings page