The biggest area of concern remains in the Middle East where Iran is pushing ahead with a nuclear weapons program despite warnings from the United States and the United Nations.
Iran produces 5 percent of the world’s daily oil fix and if things get out of hand and that supply is curtailed or cutoff, the price of oil on the open market will skyrocket.
$130 a Barrel
Some experts predict $130 a barrel for crude, but I think that may be low if tensions escalate to the boiling point.The good news is that price won’t hold for long. The world market will adjust and the price will come down, but not before doing some serious damage.
The American public is in no mood for another round of gasoline price hikes like the ones we saw after Hurricane Katrina, especially since these could be much worse.
If crude prices do spike at or above $130 a barrel, along with $5 and $6 per gallon prices at the pump will come shortages because the supply has been restricted.
No Oil from Iran
Even though the U.S. doesn’t buy oil from Iran (it’s against the law), less crude on the market will push supply to open market contracts rather than fixed price contracts.Higher energy prices will push inflation higher, which in turn may prompt the Fed to raise interest rates even higher.
There’s nothing good about this scenario.
Investors who believe this or some version of it is a likely scenario in the near future can move some of their assets into interest-bearing instruments (not fixed rate) to take advantage of rising rates.
Energy Companies
Energy companies have done well in recent years with Exxon posting the largest profit of any company, ever. However, be forewarned that in a previous energy crisis in the 1970s, the government imposed an excess profit’s tax.That doesn’t sound like something a Republican administration would do, but don’t underestimate how angry the public will be if gasoline prices shoot through the roof again and energy companies are raking in record profits.
