Friday, March 9, 2012

The Drums Of War

February 20, 20012

Everyday there are additional stories about the dangers in the Middle-East and the threats posed by Iran. The next day, an even louder response. Then, came the sanctions on Iran and now the U.S. and NATO have began to tighten those sanctions. From an economic point of view, Iran gets 60% of its income from the sale of oil. These sanctions now include restrictions on who can buy Iran's oil in an effort to reduce their revenues and at the same time, the U.S. has put a hold on Iran's sovereign bank accounts. Logic tells you that if the sanctions work and Iran sees the "situation" as hopeless, they have nothing left to do but surrender or strike out. We know they have recently threatened to close the Strait of Hormuz.

We also know there is a rule of thumb that says currency wars (which are going on world wide now) lead to trade wars (more and more talk about tariffs, etc.) and trade wars eventually lead to real wars.

Therefore, if sanctions against Iran become crippling and they close the straits of hormuz for even five days, the price of oil would significantly increase and if something more severe would happen like the disruption of oil for 30 days, oil could jump to $200 or so. Who knows how high it could go.

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