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Don't Believe David Frum, War with Iran will not Lower Gas Prices

I caught Republican strategist David Frum speaking on Erin Burnett’s magazine show on CNN Tuesday evening. I looked, but I couldn’t find a transcript yet, so this is from memory. Frum was a speech writer for George W. Bush and is said to have put the phrase ‘axis of evil’ in W.’s mouth. On the other hand, Frum has tried to stand against the Tea Party and the Palinization of the GOP.

Burnett was making the correct point that President Barack Obama is not responsible for the price of gasoline, which is set by world markets based on supply and demand.

Frum then complained about Obama’s move Tuesday to rein in speculation in the oil markets. Frum is likely correct that there isn’t that much speculation involved in trading oil futures nowadays. While 10% or 15% of the price of petroleum may derive from traders building the Iran crisis into futures contracts (which isn’t really speculation), mostly petroleum is high because demand is exceeding supply. Otherwise there should be a lot of petroleum just sitting around in depots, which is not the case.

But Frum then went on to say that there were two ways Obama could affect the price of petroleum. He could release some American reserves of petroleum, and he could offer more clarity on his Iran policy.

And this is where Frum went off the rails. Obama cannot reduce the price of petroleum simply by being clearer on his Iran policy. In fact, it is the clarity of that policy that is contributing to high prices. A more vague and ambiguous policy is what might calm the markets.

Obama’s Iran policy is to visit crippling sanctions on Iran and to attempt to impose a financial embargo on the sale of Iranian petroleum. If you are an oil futures trader and you hear that, you might well conclude that Obama is trying to take Iranian petroleum off the market. You would be right. Guess what: less supply, assuming constant or increasing demand, equals higher prices. So you’d build that into the futures bids. And that would cause gasoline prices to rise or stay high.

Obama’s further policy is that no options are off the table, which is an implicit threat to strike Iran militarily if the oil embargo fails in changing Iranian policy of enriching uranium.

If you are an oil futures trader and you hear that, you have to build the possibility of a military strike into the price six months down the road. And that would cause gasoline prices to rise or stay high.
So it is clarity that is producing the high oil prices.

If Obama were to be even clearer, and just say that eventually he’ll probably have to attack Iran, that would cause a big spike in gasoline prices.

Obama could lower those prices (maybe by 15 to 20 percent) by just stating publicly that he would never go to war with Iran without a United Nations Security Council resolution authorizing it. And he could say publicly that the US won’t try to starve Iranian children the way it did Iraqi children.

He won’t, of course, because he is running against a warmonger, and many among the American wealthy think wars are good for business, so he’d lose support if he spoke that way (not to mention that the American Israel Public Affairs Committee, which currently more or less works for mega-hawk Israeli PM Binyamin Netanyahu, would slam him).

Obama is mainly just doing to Iran what the American Right wing, including Frum, want done to Iran. But it is that clear, unambiguous policy that is helping drive up prices. The embargo may be causing Iran to export a couple hundred thousand barrels fewer per day than it would otherwise. The embargo, and sabre rattling toward Iran, are driving prices higher.

Frum helped beat the drums for war with Iraq, and maybe he favours another war, this time with Iran. But for him to tell the American people that such unambiguous warmongering would *lower* the price of petroleum is nothing less than a Big Lie.

By. Professor Juan Cole

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