Every day you will hear tens of comments that the war risk in Middle East and possible Israel+USA strike on Iran is moving up the oil prices that at the moment are reaching record highs in euro and are close to new records in dollars. Generally this logic is true. Political risks do influence markets and war risks influence markets strongly. But besides from the risks something other is needed and is more important for the prices. That is the money supply and the general inflation situation. Without enough money on the market, even an alien invasion will not be able to skyrocket the oil prices.
Unfortunately, at the moment we have much more than enough money to skyrocket
the prices. Deeply indebted after decades of deficits in budgets, the
governments of leading countries decided to resolve the problem by printing
money. Permanent extremely low interest rates, plus enormous quantative easing programs
are pouring new cash in economy, feeding this way the inflation.
When inflation is coming the first to become more expensive are energy resources, food and gold. Energy and food rise in prices because they have low flexibility in use. They are much harder to be reduced in buying as a reaction to high prices, and when much money go to market, the prices simply go up. Gold is the eternal inflation protection asset, so initially smart money, but after that - all money, trying to protect its value, are pressing the prices up.
So at current moment we see all these prices going up. Therefore it is not just Iran project-war the reason for high oil prices. The war can influence only on oil, but not on gold and food. In fact, in war time it is possible the gold even to become cheaper, because risky times are strengthening the US dollar and this way decreasing the asset prices. In addition, even without Iran on oil market, this has no the potential to call record oil prices. It has the potential for a moderate increase, but nothing more.
In fact Iran project-war is just an excuse, and not the main reason for high oil prices. Leading central banks are pumping liquidity in markets to keep alive the high deficit government budgets. The new hot money are initiating inflation and non-flexible assets are first and mostly to increase.
From time to time I even think that Iran war is needed to excuse fuel inflation. With so much money-print the inflation is inevitable. But inflation is dangerous for society and can provoke social instability and unrest. When we see 5 or even 10 dollars per gallon in USA, the people will start asking questions. Bitter questions. And the politics will have to say: "Sorry, we printed money to fund our deficit, to pay for social system, pensions and health, and to save bankers. This caused the inflation and this is the reason you have to pay $10 per gallon..." Do you expect this to happen? Not of course. Instead it is easier to say that the war in Iran is guilty for high prices. But is Iran war guilty for food and gold prices?
When an inflation is coming something other is coming too - the politics imagination of fabricating excuses. And Iran war is just an excuse for the general political responsibility that refuses to make reforms and is "deciding" problems by printing money. There are much other excuses, some of them very funny.
For instance in some Eastern European countries at the moment there is an enormous increase in eggs price. As a part of general food inflation there is nothing surprising. In fact, not only the eggs price is rising. But being more extreme and speedy, and due to sensitive moment (Easter is coming soon), the eggs price becomes general and dominating problem. So the governments have to find an excuse. And they found it. Guilty for high eggs price are... EU regulations for so called "happy hens". In recent years EU passed a regulation for guaranteeing minimum living conditions for hens. This is a stupid regulation - one of many stupid laws of EU. But it can't provoke such sizable price increase. But it is a good excuse. And politics are successfully using it. EU happy hens are guilty... :)))
So if we really need normal and non-inflation oil and gas prices, we must look at FED, White House and ECB, and ask them for answers. Iran is neither a question, nor an answer... It's just an excuse...