Re: Price of Gasoline if U.S. Withdraws From Iraq Immediately?
He is not my friend, just heard him explain these two issues on the television. His explanation was something along this:
There is no current substantial spare capacity outside the Middle East. The main part of spare capacity available in the Middle East is in Saudi Arabia. Any substantial disruption in production in Saudi Arabia or Iran (which the nervous oil traders start to worry about) would lead to a sharply rise from current prices (a sharp increase is needed to make equilibrum since short term demand for oil is relatively insensitive to price changes). The US support for Israel aggravates the conflict with Iran and large parts of the Saudi population, thus contributing to the risk of a disruption.
He also explained how a strong current demand creates a relatively high floor upon the risk premium is added.
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