Photo: Flickr/.Larry Page
It’s easy to get lost in the drama surrounding events as they unfold in the Middle East.For example, the ongoing talk of an Israeli strike on Iran has been a major talking point for investors and analysts trying to figure out what kinds of big “tail risk” events for which the market could be unprepared.
When taken in the context of that storyline – that war with Iran is getting closer and closer – the economic sanctions imposed against Iran by the West make some sense.
There’s only one problem with that – concern over a showdown with Iran over their nuclear program has been around for years.
David Frum, a contributing editor at The Daily Beast, talked Daniel Cloud, a hedge fund manager with a much better explanation for why the sanctions are just now happening: Iraq.
According to Cloud, Iraq’s recent success in ramping up oil production makes removing Iranian oil less of a threat at this point.
Here is part of Cloud’s explanation, via The Daily Beast:
Iraqi production has gone from a low of less than two million barrels of oil a day at the height of the war, to almost 3.4 million barrels a day this September. The Iraqis have a target of 4 million barrels a day by 2014, which – given the way things have gone in the last year – they are quite likely to meet and perhaps exceed. The increase of 1.5 m barrels/day that has already occurred neatly matches the decline of about 1.5 m barrels/a day that has occurred in Iranian exports over the last year.
Since the West could always quietly abandon sanctions if things went badly wrong in Iraq, serious sanctions on Iran have gone from being impossible, to being almost costless, as a result of the success of the Iraqi reconstruction program. While the public narrative in American politics casts Iraq as South Vietnam and Iran as North Vietnam, making the Iranians the main beneficiaries of the war, in fact that scary old story has nothing at all to do with Iraq or Iran, and the actual outcome of the war, for the Iranians, has been disaster.
Meanwhile, oil plunging over 4 per cent yesterday while protests raged and hyperinflation accelerated in Iran lends some credence to the argument that Iran is quickly becoming irrelevant in the global oil market.