19 Historical Oil Disruptions, And How No.20 Will Shock Markets
Albert Einstein once wrote that “the definition of insanity is doing the same thing over and over again and expecting different results.” Were he alive today, he would be repeating the line to anyone who would listen, especially the reporters on cable news channels such as CNBC. He might add that the world’s policymakers always approach oil market disruptions in the same way: predicting there will be no impact on prices.
Einstein would then point out that the policymakers are consistently wrong. A hefty price boost has followed every disruption.
The world has experienced nineteen oil market disruptions over the last forty years. In a paper published in March 2018, I chronicled these events and noted that the maximum price increase was predictable. Last Monday, Secretary of State Mike Pompeo initiated the twentieth disruption. The consequences are projected here.
Start, though, with the energy policy insanity. In each of the disruptions since 1973, I have noted the following regarding government officials.
State Department representatives always say something like “the US Department of State remains in contact with our partners to reduce the risk of supply disruptions. There is sufficient oil supply in the global markets that countries can access.”
OPEC officials always spout some version of “the oil market remains well-supplied, with the recent price driven by geopolitics, not fundamentals.”
Nothing has changed. Last week Reuters offered this quote from the State Department’s Brian Hook, the person running the Iran sanctions program:
“There’s roughly a million barrels per day (bpd) of Iranian crude (exports) left, and there is plenty of supply in the market to ease that transition and maintain stable prices,” said Brian Hook, U.S. Special Representative for Iran and Senior Policy Advisor to the Secretary of State, speaking in a call with reporters.
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