Escalating tensions with Iran remind us of a concept known as the butterfly effect. Tailored to our special situation, it goes: Does the flap of a drone’s wings in Iran set off a tornado in Texas?
The answer could be yes. Iran shot down a U.S. drone last week, and, after halting plans for a military strike, on Monday President Donald Trump responded by increasing economic sanctions on the country. The threat of war has since run cold through our country and, we should hope, in Iran too.
The fear and chaos showed up where it so often does, in markets.
Oil prices immediately reflected the diplomatic and military maelstrom of the Trump administration by moving higher. This has consequences for the growing Texas oil industry and could have consequences for everyone who drives, uses electricity or consumes plastics _ even if we are able to avoid war.
We have watched President Donald Trump toss aside diplomatic work by his European counterparts to bring Iran into a more normal relationship with the outside world.
We’ve watched him impose sanctions on a country where many of the people yearn for religious, political and economic freedom. We’ve watched him react to Iran’s attacks on the drone and oil tankers by tweeting threats and revealing his thought process in a way that is, well, weak.
And this week, we watch the administration attempt to rally a global coalition to confront Iran, as the president says: “We do not seek conflict with Iran or any other country.” But: “I think a lot of restraint has been shown by us, but that doesn’t mean we’re going to show it in the future.”
Oil markets are reflecting all of this, with West Texas Intermediate futures jumping 9.4% last week and another 1.1% by mid-day Monday, to $58.06 a barrel, according to Bloomberg. Last week’s rally was the largest since December 2, 2016.
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Trump is piling on to a situation that is already deeply troubling the oil industry. The U.S. this year has pressured other countries to honor U.S. sanctions against Iran and to refuse to buy Iranian oil. Attacks on oil tankers in the Strait of Hormuz ensued, and the U.S. accused Iran.
The Strait of Hormuz is a choke point for oil, a channel between the United Arab Emirates and Iran where 20% of the world’s oil volume moves from the Persian Gulf to the Arabian Sea to ports across the world. Crimping the flow impacts global oil markets.
A complication is the fact that Saudi Arabia has led OPEC countries in cutting oil production, and the Saudis appear to be holding fast, despite the fact that two of the tankers that were attacked were Saudi. The cartel plans to meet again in early July. Some analysts see an opportunity for Texas producers to rev up production and take market share.
We worry that Trump’s tweets and confusing signals could do much more damage than boost oil prices. He is pushing Iran in a way that could propel us down the path to war.
The military option should never be off the table, of course, but what’s called for here is a subtle approach. By that we mean an approach where the United States remains strong while finding a way to propel the Iranian regime down a path of our choosing _ one that leads Iran away nuclear ambitions and away from confrontations that escalate military tensions _ rather than reacting to the latest provocation.
The administration needs to get ahead of events, as we will all be better off if Iranian officials start to see that the best option for all involves cooler heads driving toward a less violent Middle East.
This editorial was originally printed in the Dallas Morning News.