Iran's Oil Market Suicide Pact

The government sanctions against Iran are working better than expected, but Iran is hell-bent on destroying its own economy … That's great news, if you aren't holding oil.

Seeking Alpha - I don't think enough attention has been given to what will happen when Iran finally surrenders and yields to the demands of the west.

The sanctions themselves are something of a miracle. There has been too much demand for oil for us to effectively bully one of the top 10 producers. The last time we tried to bully one of the top 10 (Iraq), the price of oil doubled in only 16 months (May 2003 to Oct 2004) and doubled again within 4 more years, and continued to increase until the world economy crashed.

Even Libya - with an export of only 1.6 [Mbbl/d] - was able to cause Brent crude prices to spike 27% in 80 days when its revolution erupted and shut in crude production. Messing with oil exporters has always been looked upon as picking a fight with the Lernean Hydra armed only with a cleaver - you can attack all you want but it only makes things worse.

So when the idea of SANCTIONING Iran started really gaining traction, and the market began the fearful realization that "We are really going to do this?!!", the prospect re-introduced a new form of "terror premium" into the markets up over a four month period.

But this market is far different than what we saw in 2003-2008, the terror turned out to be a remnant of our youth which has no bearing on the world today: similar to a fear of the dark, or a fear of monsters under the bed.

The resurrection of the U.S. oil industry:

Part of the reason that this is so is because of the recent ramp-up of U.S. production. As I indicated in my first article, the falling price of natural gas has caused U.S. production to switch from gas to oil at a rapid and increasing pace.

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