Beware of The Law of Unintended Consequences

Dick Morris and Eileen McGann, writing on their blog, DickMorris.com, posted a very interesting commentary yesterday.

THE IMPENDING COLLAPSE OF OUR ENEMIES
By Dick Morris And Eileen McGann
12.15.2008

The Depression — let’s call it what it is — leaves us, well, depressed. But there is very good news from around the world. Our enemies are collapsing under the strain of dropping oil and gas prices. What we had all hoped conservation and off-shore drilling would achieve, the global economic collapse is accomplishing: the defeat of OPEC, Iran, Chavez, Putin and the weakening of the financial underpinnings of Islamist terrorism. In each of these nations, the hold of the dictator is weakening as, one after the other, they face the consequences of dropping oil prices.

In Iran, the sanctions imposed by the United Nations, the aggressive efforts of the U.S. government, and the actions of states like California, Florida, and Missouri to ban pension investments in companies that do business with Iran are having a big effect. Unable to expand its oil production for a lack of foreign investment, Iran faces the need to slash its budget drastically as energy revenues, the source of 85% of its income, crash. Iranian President Ahmadinejad is announcing harsh austerity measures. Having based his budget on $50-$60 oil, he now must recast it for at a $40 per barrel level. He boasts of cash reserves of $23 billion, but that sum won’t last long unless he makes major cuts. (Do the math: a shortfall of $25/barrel per day x 4 million barrels a day x 365 days = $36.5 billion, more than he’s got on hand).

The question for Ahmadinejad and for the Ayatollah who stands behind him is: Can their regime survive economic collapse? Unable to buy social peace by handouts and subsidies, will the top blow off an country that hates the regime, is predominantly very young, and is only 40% Farci?

Read the rest.

They go on to discuss the plight of Venezuela and Russion.

So, what has happened here?

For the last year or more, the price of a barrel of oil has risen rapidly, peaking at about $140 per barrel. For all this time, our enemies, who are all big oil producing states, have licked their chops and built these prices into their budgets and strategic planning. These unexpected billions have funded Iran's nuclear weapons program and subsidized the failing Iranian economy. Unexpected billions have funded Putin's plans stabilize the Russian economy, rebuild the Russian military, and pursue his expansionist aggression in Georgia (with more planned to come, I'm sure).

So the oil producing countries have done their best to keep pushing oil prices higher, manipulating the market with all their might, rejoicing all the time at the sudden windfall. This caused a classic "bubble" in the oil market. Oil futures kept being driven higher because speculators and big purchasers (like airlines) kept bidding up the prices, driven by the fear of even higher prices yet to come.

Every market bubble eventually bursts. Something happens that causes the hysteria to evaporate and reality to set in. When that happens, prices in that market collapse. We have seen that in the oil market as the price of a barrel of oil fell precipitously from around $150 per barrel to around $45 per barrel. This is about where supply and demand set the price of oil in an open market in the current economic conditions.

But our enemies have built their short-term good fortune (the oil price bubble) into their long-term plans as though the bubble was never going to end. They were wrong.

Have you ever noticed how much easier it is to put more money into a budget than it is to take money out of a budget? As Dick and Eileen said, our enemies are now in extremely serious budget difficulty. And the best thing about it is their troubles are mostly of their own making!