Many of us poor souls in California are paying north of $5 for a gallon of petrol this weekend, the recent premium tagged primarily to supply constraints. This experience however provides a fascinating little window into the “what if's” of world events.
Gasoline at $5 has a profound psychological impact on the US consumer (except in Hawaii). We don’t know that as an economist, we know that as a consumer. A quick survey today of three local restaurants is all we needed. Business this week dropped like a rock. No surprise.
A national average of $5 for an extended term would take perhaps 1 1/2% from GDP, probably more. So “what if”?
A good portion of the impact of a strike on Iran is priced in. Not all of it naturally because we cannot be certain just how much of the noise from our mullah pals is just that. We suspect very little is substantive; nevertheless, no one knows for sure if the mullahs will strike the Saudi fields within the first five minutes; no one knows if they can close the Strait within the first thirty. So this potential event remains a bit of a wild card, and thus a threat; one capable of putting US growth at 0%.
But we may be spared that. We have argued that the preferred method to rid Iran of these troglodytes is the one from within. After the masses suffer enough, they will oust these clowns. They tried to do just that two years ago but were abandoned by our administration. Now, they may not need our help.
The quickest way to a solution from within is to blockade gasoline exports to Iran. Because Iran can only refine about half of what it needs, this would put the consumer in a very bad mood. We saw a year or two back just what happens when gasoline is scarce – they burn gas stations to the ground. So that would work. But wait! A depreciated currency may serve the same purpose.
The rial hit an all-time low of 35,500 to the dollar last Tuesday, down from 24,000 a couple of days earlier. Iranian’s are not one bit happy and have taken to the streets.
The rial’s decline is due to a combination of gov’t mismanagement and the bite from sanctions; this is not lost on the consumer. Only the mullahs stand in the way of a new pair of Levis.
Key is to make day-to-day life so uncomfortable for Iranian consumers – every one of whom wishes to ape Western style and values - that they complete the inside job, sparing Israel the alternative, and, sparing the US a 0% GDP print anytime soon.
Robert Craven
Gasoline at $5 has a profound psychological impact on the US consumer (except in Hawaii). We don’t know that as an economist, we know that as a consumer. A quick survey today of three local restaurants is all we needed. Business this week dropped like a rock. No surprise.
A national average of $5 for an extended term would take perhaps 1 1/2% from GDP, probably more. So “what if”?
A good portion of the impact of a strike on Iran is priced in. Not all of it naturally because we cannot be certain just how much of the noise from our mullah pals is just that. We suspect very little is substantive; nevertheless, no one knows for sure if the mullahs will strike the Saudi fields within the first five minutes; no one knows if they can close the Strait within the first thirty. So this potential event remains a bit of a wild card, and thus a threat; one capable of putting US growth at 0%.
But we may be spared that. We have argued that the preferred method to rid Iran of these troglodytes is the one from within. After the masses suffer enough, they will oust these clowns. They tried to do just that two years ago but were abandoned by our administration. Now, they may not need our help.
The quickest way to a solution from within is to blockade gasoline exports to Iran. Because Iran can only refine about half of what it needs, this would put the consumer in a very bad mood. We saw a year or two back just what happens when gasoline is scarce – they burn gas stations to the ground. So that would work. But wait! A depreciated currency may serve the same purpose.
The rial hit an all-time low of 35,500 to the dollar last Tuesday, down from 24,000 a couple of days earlier. Iranian’s are not one bit happy and have taken to the streets.
The rial’s decline is due to a combination of gov’t mismanagement and the bite from sanctions; this is not lost on the consumer. Only the mullahs stand in the way of a new pair of Levis.
Key is to make day-to-day life so uncomfortable for Iranian consumers – every one of whom wishes to ape Western style and values - that they complete the inside job, sparing Israel the alternative, and, sparing the US a 0% GDP print anytime soon.
Robert Craven
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