Will Chatter About Iran And Return of 12th Imam Mahdi Drive Up Price of Oil

Is the Iranian leadership made up of reasonable men or are they driven by a sense of a divine mission? As tension builds over Iran's nuclear program, the answer to this question becomes important in calculating the risk of the Gulf of Hormuz being shut down and oil becoming very expensive.

There are numerous commentators that have posted that Iran's Supreme Leader Ayatollah Ali Khamanei  and President Mahmoud Ahmadinejad  believe that  the 12th Imam Mahdi will return to earth either as result of or to bring about the apocalyptic end of days. These commentators suggest that the Iranian leaders may be governing with the intent of triggering an apocalypse and hastening the appearance of the Mahdi

If the idea that Iranian leaders would welcome an apocalypse becomes commonplace, then it seems likely that the price of oil will be bid up due to a higher perceived risk factor that Iran will attempt to shut down the Gulf of Hormuz.

In regard to the short term price of oil, it is irrelevant as to whether the assumption  is correct that Ayatollah Khamanei and President Ahmadinejad  believe the 12th Imam Mahdi will return to earth. What really matters is whether oil traders come around to the opinion that the Iranian leadership are true believers. If oil traders become fearful the Ayatollah Khamanei may attempt to close down the Strait of Hormuz as an aspect of his divine mission, then the risk factor included in the price of oil will go even higher.

The following are a couple of recent posts on Iran and the return of the 12th Imam Madhi. When reading, ask yourself not only if you think they are credible, but also if you think this theory is likely to gain credence with oil traders.

Why Iran will not ‘come to its senses’

What Does the Ayatollah Want?

Voters in Euro Zone Will Elect New Leaders, U.S. Voters Likely to Extend Gridlock

The Euro zone crisis is likely to lead to electoral defeats of ruling parties across the continent. They will be punished for implementing austerity measures. In contrast, here in the U.S. it is looking increasingly likely that incumbents will do well in the November elections. It seems probable most incumbents will be returned to office and that control of the the Presidency, Senate and House will remain split between the Democrats and Republicans. Gridlock will continue and hard decisions about the budget will be kicked down the road.

The election schedule for the Euro zone during 2012 is rather light. Among the countries that have been generating the most headlines in the financial press, only France and Greece have elections scheduled. In France, President Sarkozy appears to be headed for defeat at the hands of Socialist party candidate, Francois Hollande. A poll by the daily Le Parisien, showed Hollande remains the clear favorite, and predicted him easily defeating Sarkozy in a second-round runoff with 58 percent to 42 percent.

In Greece, Antonis Samaras, head of the New Democracy party, is the front runner to become the country's  next prime minister, replacing Lucas Papademos.

Given the turmoil in the Euro zone due to the debt crisis, it would not be surprising if parliamentary governing coalitions fall apart and snap elections are called in additional Euro zone countries. And even if their coalitions can hold together until required elections, Angela Merkel and Mario Monti seem unlikely to survive as heads of state after the 2013 elections in Germany and Italy.

In the Euro zone, the voters will probably kick out of office politicians that are attempting to rein in the huge budget deficits. In the U.S. the voters will probably reward the politicians that continue to ring up unsustainable trillion dollar deficits with another term in office. 

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Will the Weather On Steroids Damage Santorum for Taking A Know Nothing Position On Global Warming?

The claim by Rick Santorum that "global warming is a hoax" is becoming one of his campaign's bedrock issues.  While it is a claim that appeals to his core base of supporters, it is also is likely to lead the majority of moderate and independent voters to question his judgement. About 63 percent of Americans said they believed that global warming is occurring according to polling by the Yale University Project on Climate Change Communication, which tracks Americans' opinions about climate change.


The increasing destructiveness of extreme weather is a major cause of the tilt in the opinion of the majority of Americans to now judging that global warming is occurring. The phrase "weather on steroids" is a succinct  way of describing the effect of global climate change on weather events. This use of the phrase seems likely to become increasingly commonplace. There is even a Weather on Steroids website.


Our minds are hard-wired to spot patterns as it helps us make sense of the world. Thus, we often confuse correlation with causation. In the case of extreme weather, at least some of the droughts, flash floods, and record breaking snowfalls of the last few years probably can be attributed to global climate change. It is easy to make a connection between changing weather patterns and the climate and one that some researchers judge to be scientifically valid. Once an individual has made a connection between extreme weather and global climate change, it becomes likely that they will make a connection between every extreme weather event and global warming. 


Here are two predictions that are almost certain to come true: 1) there will be extreme weather events between now and the end of the Presidential primary season; and 2) extreme weather events will reinforce the concerns of those that are worried about global warming.  Each extreme weather event enhances the likelihood that voters will decide that Rick Santorum is a "wingnut" on the issue of global warming. 


New evidence that believers in "global warming is a hoax" have their heads buried in the sand comes out almost every week. In addition to the freaky weather, U.S. scientists using satellite data have found that thinning glaciers and icecaps have been pushing up sea levels by 0.06 inches a year, and that sea levels are rising by about 0.14 inches per year. While a 0.14 inch rise in sea levels in any one year is manageable, if that level of rise is extrapolated out over multiple decades, it become threatening to the millions of inhabitants of low lying areas. Further, if the pace of the melt escalates as some climate researchers predict, the consequences within just a few decades could be devastating. 


Conclusion
The "global warming is a hoax" position of Rick Santorum makes him incredibly vulnerable in a general election. As increasing evidence of global climate changes makes it harder to ignore, the majority of Americans' are going to be dismissive of a candidate that takes a "know nothing" position denying its existence. Every extreme weather event will make Santorum appear increasingly foolish, regardless of  whether the events are scientifically attributable to global climate change. Each "weather on steroids" occurrence will damage Santorum's credibility with voters.


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Prediction: A Revitalized Environmental Movement Will Impact The U.S Economy

Be Happy, Do Not Worry About Looming Debt, Expensive Oil, and Extreme Weather Crises

Stocks around the world are off to their best start in 18 years. The permabears are getting massacred as they get stopped out on their short positions. My own bearish forecasts made less than two months ago are looking terribly misguided.

However, despite the good start to the year, I worry that terrible problems are just being kicked down the road. I still have a sense of dread over the headwinds the economy will face over next few years.

Debt - Europe, Japan, and the U.S. keep piling on trillions of dollars of unsustainable deficits. In Europe, the proposed austerity measures do not end the deficit spending by governments in 2012, they simply reduce the size of the budget shortfalls. The debt problem is growing by the day.

So far, Japan and the U.S. have felt minimal consequences of their profligate government spending. However, the complacency about continuing to running huge budget deficits is already coming to an end in Japan and most likely will also in the U.S. when the contentious debate over the debt limit and the Bush era tax cuts return to the headlines within less than a year


Japan's total public debt is estimated at l 1,024 trillion yen ($13.31 trillion), which means every child born in the country today comes into the world owing more than $100,000. Dwindling tax revenues cover only 40% of Japan's annual government budget, a shortfall being financed by adding even more new debt. With the tax increases and entitlement cuts that are being proposed to cut the deficit, Japan's economic future may be almost as bleak as that of the PIIGs (Portugal, Italy, Ireland, and Spain).

For now, the U.S is able to pump up the fragile economy by adding  a trillion dollars a year of fiscal stimulus via deficit spending. However, financing the expanding U.S. debt will become ever more difficult as the interest costs eat up an increasing portion of tax revenues. 

Expensive Oil - Despite the resurgence in oil production in the U.S., the world is running out of cheap oil. Newly discovered sources of oil require higher costs to extract, more time to obtain permits and construct drilling rigs, and more energy to pump the oil. Despite shrinking demand in the U.S. and Europe, global consumption will increase by 1.2 percent in 2012, according to International Energy Agency estimates. Demand in the most industrialized nations will shrink by 300,000 barrels a day, or 0.7 percent, this year, while fuel use in emerging economies will grow by 1.4 million barrels, or 3.2 percent, the agency forecasts. Regardless of new technologies, oil will be critically important as a transportation fuel and fertilizer feed stock for at least a decade. Oil is likely to continue getting more expensive simply based on demand, supply, and cost of production. Geopolitical tension in the mid-east and Nigeria may also inflate the price of oil.

Extreme Weather Events - The current debate over whether the earth's temperature has risen over the past 15 years seems misguided. Most global warming Cassandra's point to the potential for catastrophic consequences due to the rise of sea levels by 2050 if global temperatures rise by another 2 degrees Fahrenheit. However, a 2 degree rise over a 40 year period is only 0.05 degrees per year. Given the variability of weather from year to year, a 0.05 degree Fahrenheit change is not going to be very noticeable. However, the increase in extreme weather events is noticeable to anyone reading the headlines. Flash floods and droughts are increasing commonplace. The world may already have reached a tipping point in terms of extreme weather events due to an increase in water vapor in the air and the thinning of the arctic ice sheet. While no single extreme weather event can be blamed on global climate change, the almost daily occurrence of record breaking rain and snow storms seems likely due to the increase in water vapor in the atmosphere. Some believe that global climate change may be contributing to the record setting cold and snow storms in Europe. If extreme weather continues to get worse, in addition to higher food prices and the costs of cleaning up the damage, there are also likely to be significant restrictions placed on the economy by a revitalized environmental movement.

Conclusion

The rising markets certainly make the permabears seem wrong. Time will tell how much longer the problems of excessive debt, declining supplies of cheap oil, and increasing frequency of extreme weather events can be kicked down the road

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February Weather Slams Weak Economies of Europe, Boosts Growing U.S Economy

A killer cold wave descended upon Europe last week while most of the U.S. enjoyed moderate winter weather.  This week, while the the cold snap in Europe continues, even the extreme weather in the U.S has its benefits as storms across the southwest plains are providing relief to drought stricken Texas. Even Mother Nature seems to be conspiring to extend the decoupling between the economies of the U.S. and the Euro Zone. The weak European economies will be hurt by higher heating costs, disruptions to travel, and reduced agricultural output. The growing U.S economy will be boosted by a moderate cost of heating, extended construction season, and  areas of Texas benefiting from a break in the drought.

According to Bloomberg, consumption of natural gas in Poland is 41 percent higher than average winter  consumption while in Germany the cost of electricity is up by 14%. These two localized figures suggest that heating costs during the cold snap could be up as much as 50% across Europe. Natural gas shortage could become a major problem as the supplies from Russia have been curtailed. Food cost are likely to rise as the production forecast for the Russian and Ukrainian winter grain harvests are dipping as crops that are already stressed by drought are now being hit with extreme cold weather.

While a few weeks of weather differences will only be relatively minor factor in the difference in economic performance between the U.S and Europe over the long term, it must seem to the citizens of the Euro Zone that they can not catch a break.

2/10/12 Update
The extended duration of the cold spell is converting the economic damage that will result for this severe weather into much more than a blip. The economic benefits to the economy from the moderate December weather are being over written by the extended cold snap.  If the cold spell continues through the end of the month, as some are forecasting, 1st quarter GDP will take a noticeable dip. Tourism and transportation have suffered major setbacks. Thick ice has closed the Danube river in half a dozen countries and confined scores of ships to port on the busiest European waterway.  A ban on navigation is expected to remain in place for 10 days. 1000's of airline flights have been delayed. some industrial facilities may be asked to reduce operations in order to ensure adequate energy for warming households.

A aspect of the killer cold in Europe and the freaky weather in the U.S that is concerning is that it provides more evidence that extreme weather is becoming more common across the globe. According to Weather.com meteorologist Stu Ostrow

Weather extremes have existed for as long as there has been weather on Earth. That’s a fundamental reason why as a meteorologist who is routinely observing them I was so skeptical for so long that anything was out of the ordinary. 

However, increasingly during the past decade or so, the extremes have been so frequent, and so extraordinary, and sometimes even at the same time and in such close geographical proximity to each other, that I have become convinced that something ain’t right. That while there have always been extremes, their nature is changing. This winter convinces me even further.

While the costs of this week's extreme weather are falling heavily upon Europe, it is far too early in the year to assume that the U.S economy will be able to dodge the impact of extreme weather for the rest of 2012.

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If Global Warming Deniers Are Proved Wrong, What is the Economic Fallout

Researchers have been warning about global warning for over 40 years. However, given the minimal temperature rise during any individual year over the past four decades, it has become commonplace to shrug off the scary forecasts of climate scientists. There has been a rancorous debate over whether the rise in the Earth's average temperature of about 1 degree Fahrenheit (0.8 degrees Celsius) over the last century (and about twice that in parts of the Arctic) is due to natural or man made causes. Scientists disagree over whether the the increase in global temperature is the result of: 1)  a natural recovery in temperature that has been ongoing at an erratic rate since the Little Ice Age; 2) man made pollution; or 3) a mix of both natural and man made causes.

The global warming debate's focus on temperature change may be misplaced, at least in understanding the ramifications upon the economy of climate change over the next few years. The increase in atmospheric moisture may be the change that is the more relevant metric leading to easily observable changes. Measurements show that global atmospheric water vapor has increased by about 4% since 1970. Increased water vapor in the atmosphere feeds heavier rain and snow storms, leading to more flash floods and disruptive snow e.  Also, global warming theorists claim that the drought in Texas and Florida is due to climate change. The drought is having an immediate economic impact and is a much more likely to convince skeptics that global climate change is occurring than are temperatures increases of a fraction of a degree per year.


If man made activity, particularly burning of fossil fuels, truly can be proved to be causing global climate change, then there will be two negative impacts on economic activity: 1) direct economic costs due to increased flooding and droughts, as well as the wild fires that will accompany the droughts; and 2) restrictions imposed by a reinvigorated environmental movement upon energy development, production, and consumption. 


If global warming is occurring it will make extreme weather even more destructive. Extreme weather led to record damage in the U.S during 2011 of over $46 billion according to the National Climatic Data  Center. Further, it also has led to increased food costs. As an example, the price of beef will be up again this year due to the drought in Texas, as cattleman in the state have reduced the number of the beef cows by 660,000. The price of beef has hit an all-time high in each of the last four months and is likely to. rise even more throughout 2012. 


If the drought gets worse, the costs to Texas residents will start adding up quickly. The drought is even having a "slight impact" on electricity generation, according to testimony from Trip Doggett, the chief executive of the Electric Reliability Council of Texas (ERCOT), which operates the state's electric grid. He anticipated that problems would remain slight through the summer, but if the drought continues into next year, "the consequences are likely to become more severe." Several towns in Texas have come close to running out of water during the drought, but until recently none had to truck in water. Most found solutions to hold them over, often paying tens of thousands of dollars to avoid hauling water. However, last week Spicewood became the first town in the state to run out of drinking water.


The impact on economic activity of a revitalized environmental movement could be far more negative than the cost of extreme weather. The greens will intensify their fight to reduce CO2 emissions.  The primary impact is likely to be an increase in energy costs. There will be:

1) increased pressure to shut down coal fired power plants;
2) continued challenges to obtaining permits for oil developments;
3) attempts to shut down fracking;

4) attempts to bar oil from tar sands from being imported
5) further legislation requiring utilities to increase usage of clean energy despite the high cost

6) a renewed effort to pass cap and trade legislation or impose a carbon tax
6) increased pressure on auto makers to increase fleet mileage 

I went into more detail on the above list in the post Prediction: A Revitalized Environmental Movement Will Impact The U.S Economy

Conclusion

If the global climate change deniers are wrong, it seemingly leaves us with a terrible choice of which do we put at risk - the economy or the environment, and what are the trade-offs that are acceptable. An all out effort to combat global climate change would entail enormous costs to the U.S economy. Given the negative impact this would have on household income, it is little wonder that there is tremendous push back against actions that would harm the economy while not having a measurable impact on the climate. The primary result of the actions in the U.S. to combat global climate change might be to push energy intensive manufacturing over to Asia, resulting in reduced U.S economic activity with no net benefit. Further, unilateral action by the U.S on global warming could be fruitless if not matched by concurrent action by the developing nations of Asia. Thus, global warming and the expense of responding to it will remain incredibly contentious even if the deniers throw in the towel.


The variety of opinions on global warming policy choices is shown by the results of a survey of economists    asked under what circumstances the USA should reduce its greenhouse gas emissions, conducted by New York University School of Law.  While this survey's 144 respondents may not be a representative group, the results are noteworthy.

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Global Warming Scare May Be Overblown In Short Term, But Increased Droughts, Flooding and Wildfires Are Here Today

A couple of interesting news items caught my attention today. On one hand, research indicates that global temperatures have not increased during the past 15 years. On the other hand, the drought in the Southwest has led to wells no longer producing enough water to meet the needs of the residents of Spicewood, Texas.  Long term predictions about global temperature change are being debated, while much less attention is being focused on the immediate impact of extreme weather events.

In order to gain attention and funding, climate researchers have focused attention on the armageddon-ish aspect of melting ice caps causing global flooding. The almost impossible to accurately predict impact of human activity on the global temperature change over the next few decades gets most of the attention, while the less dramatic impact of changes in atmospheric moisture content that are already being manifested gets less attention.

The research showing that temperature have not risen for 15 years indicates that the computer simulations for forecasting temperature change are flawed. Thus, the longer term predictions about global temperature are under attack. However, the shorter term predictions that flash floods and droughts would increase have come to pass. According to Dr. Kevin Trenberth,

there is a systematic influence on all of these weather events now-a-days because of the fact that there is this extra water vapor lurking around in the atmosphere than there used to be say 30 years ago. It’s about a 4% extra amount, it invigorates the storms, it provides plenty of moisture for these storms and it’s unfortunate that the public is not associating these with the fact that this is one manifestation of climate change. And the prospects are that these kinds of things will only get bigger and worse in the future.

The uncertain long term impact of global climate change was pointed out in The Wall Street Journal's editorial No Need to Panic About Global Warming. However, the residents of the Southwest that will suffer from drought this summer may not agree that there is no need to panic.

The occurrences of extreme weather is increasing. Thus, it seems a bit premature to write off being concerned about Global Warming. Perhaps more attention should be focused on measuring the moisture in the atmosphere and less upon measuring temperature changes. Droughts, floods, and wild fires are already here. It would be a relief to learn that the 16 scientists urging candidates for public office to ignore the looming threat of climate change are correct, but I'm not ready to ignore the conflicting viewpoint of NASA.

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