Obama Advisor Links High Gas Prices to War in Middle East... And He's Right.

Jet Fuel Is a Bit Higher, But It Wasn't That Long Ago....

Hey, we weren't sure if you knew this or not, but gas is getting pretty expensive. Real expensive.. That $1.59 a gallon you seen on the sign from this plane crash was only about 3 years ago. So, what caused all this?

Long term, yes, there are a slew of factors that contributed to where we are today. Increased demand, along with a lack of inceased production, have caused much of this mess. However, this has been going on for 30 years now. What could have precipitated the quick rise recently?

Well, an informal advisor to Obama's campaign feels that the Bush policy in the Middle East is the main culprit. Rand Beers, who served on the National Secuity Council for four presidents before resigning in 2003, says that the primary cause for today's high gas prices is our involvement in Iraq. I tend to agree.......

What about supply and demand? Well, let me bore you with some Microeconomic terms and theories... The supply and demand of oil actually has been pretty stable for the past 30 years. They have both slowly yet steadily risen since the crisis' of the 1970's. When supply and demand are pretty much equal, prices remain steady - as they have, from a low of 69 cents in the late 90's, to a high of $1.75 at various times.

That has held true for some time, but there is one problem that has always been there with oil demand - it's inelasticity. Inelastic demand means that no matter what the price of an item is, you will use the same. Do you smoke more because cigarettes are cheaper? Not usually, but it's not easy to quit, even at $3-5 per pack. The same goes for oill and gas. Unless they make a shuttle bus to Hilton Head Island, I'm going to have to keep driving my car back and forth every week. So, be it $1 or $4 per gallon, you're going to drive a certain amount no matter what. The good thing is that gas prices had been relatively stable, due to market forces and to the stability of the supply. That's where the fun starts.....

External market forces will have an effect on prices. Would a major offensive on a country that supplies 25% of the world's crude oil have an effect? You bet. Real or not, any possible effect on supply will make prices shaky. The attacks on Iraq's supply line, although temporary, put a trigger on the volatility of oil prices, and it has a synergystic effect. From then on, even the slightest discontinuation of supply will cause prices to rise. Then the other problems take hold.....

Once the market sees possibilities of interruptions of supply, speculators will see the chance of higher prices - and profit. Even the small events - like the possibility of attacking Iran, or even a low-level attack on a Nigerian platform in the Indian Ocean, will spark a $10 jump in prices in a single day. Then it hits other investors. What is the easiest way to offset rising oil prices? Invest in it . Sounds good, but when everyone does that, the price jump speeds up even further. And so it goes, faster and more accelerated.... Until we get where we are today.

So, what does one do? Get out of Iraq? Sure, but not quite yet. Like it or not, terrorists are still there, and they're not going to leave willingly. They are offended by other countries being there and making profits, so the refineries will still be targets. If and when the economy improves in Iraq, Al-Qaida will no longer be welcome at all, and they'll fly or drive back to Pakistan or Afghanistan, where they can have no effect on oil prices.

Will it lower gas prices? Maybe, maybe not. Pandora's Box has been opened. We are all now used to paying $4 a gallon for gas, so the new Supply-Demand line has been established. Inelastic Demand sucks, man.... Perhaps if Iraq can really blow out production and glut the market a bit, we'll see prices drop again. Maybe. Maybe......

We've got alot of work to do. It's hard to undo thirty years of stupidity.......Hopefully, we won't see this anytime soon...

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