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Oil (and Violence) Pulls Back, But for How Long?

Oil and gas have always been highly politicized commodities, but never more so than today. With the leading players in the final stages of the global economic integration gearing up for the next world war, oil is probably the single most "militarized" of commodities and you have something with devastating economic/military/political potential.

Oil has been used to fuel the engines of war in modern times but has also come to be used as a weapon in and of itself. Take for instance a prominent political event in the news this week: "Israeli fuel firm halts Palestinian gas supply" was the headline. It concerned the cut-off of fuel by the Dor Energy company that has been the sole fuel provider to the Palestinians (conflict of interest?) for over 10 years, according to press reports. The article observed that the fuel supply cut-off could also mean that hospitals, food deliveries and jobs could all be hurt by the move and could devastate the already ailing economy in that region.

It's ironic that the press would publish a story, as they did this week, under the headline "Oil prices slump as Iran fears fade" when now there is reason to believe the slump in oil prices will be short lived. Moreover, there is now a reason to fear Iran in view of the following news article...

This item relates to the subject at hand and was printed in the May 8 edition of the Financial Times under the headline, "U.S. seeks help with de facto financial sanctions on Iran." The article described the attempts of the U.S. at persuading "European governments, banks and companies to isolate the Iranian government by engaging in de facto financial sanctions..." These are the early rumblings of war as major war always begins on the financial battle field. Oil will no doubt be a primary motivating factor in this explosive Mid East conflagration and it's a tragedy in the truest sense of the word that oil will lead to the death of untold thousands.

This is where oil meets violence. Earlier we looked at the relationship between the oil price and bomb-related violence, particularly in the Middle East and other parts of the world where oil is a political reckoning force. This relationship is demonstrated in the Global Bombing Momentum index. This series of indicators shows the rate of change in reported "terrorist" bombings on a 5-day, 10-day and 20-day basis. When these momentum indicators peak and then decline to a low point on the chart to indicate a temporary lull in the frequency of bombing activity the oil price usually pulls back. But when the bombing momentum reverses higher again in response to increased bombing activity the oil price begins another advance to higher levels. Notice the most recent pullback in the Global Bombing Momentum index and note the corresponding pullback in the oil price lately.

The rather sharp pullback in the GBM indicators reflect a slowdown in global bombing activity over the past several days. With the exception of a spurt of bombs on May 7 (four bombs in Iraq leaving 24 dead in Karbala and Baghdad) there hasn't been quite as many bombings in the news since the huge bombing spree in April that left hundreds dead, mostly in the Middle East region. In light of the above quoted news items pertaining to financial sanctions against Iraq and gas "sanctions" against the Palestinians, it is very likely only a matter of time before the next wave of bombings begin, which will in due course be reflected in the GBM index. This in turn will mean an increase in the oil price as the upward trend in oil persists with the help of some well-timed political salvos.

Another news headline on May 9 asks, "Has the gas price finally peaked?" in reference to the U.S. retail gasoline price. No, it very likely hasn't peaked when the above items are taken into consideration. If Washington would spend less time in the war room and more time on the domestic front the gas price would not be as burdensome as it now is. On a side note, an article appearing in one of the regional newspapers in Raleigh-Durham, NC last week reported an increase in residents in the area who are pawning items just to be able to afford gasoline for their cars. Whether or not this news item is being exaggerated by the local press for political reasons or not, there may be some truth to it on the lower strata of the socioeconomic ladder. Regardless, when high gas prices becomes a topic of everyday conversation as it now is, it's a distress signal and one that Washington can't afford to ignore.


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