Obama has a big problem: Gas prices

As the president tries to keep the situation in Iran stable, the Republican candidates have an opportunity to strike.

By TheStreet Staff Feb 29, 2012 2:11PM

BTheStreety Daniel Dicker

 

The biggest hurdle to President Obama's re-election is almost surely going to be the inevitable steady rise in gas prices over the summer.

 

And no matter how hard he -- or anybody else -- argues that higher pump prices are largely beyond his control, you and I both know that the American public won't much care for explanations. They'll just be looking for relief.

 

And $5 gas looks very likely. I have traded oil for 25 years, and the pattern we're seeing now looks eerily similar to the run-ups in crude prices that preceded the first Gulf War in 1990, the Iraqi invasion in 2003 and the Libyan excursion last year.

 

All of these big spikes in prices were based upon supply threats that ultimately occurred because of military action, and the time line that is playing out with Iran shows many of the same characteristics.

 

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That doesn't mean I am predicting war, but it does mean that the oil market is preparing itself for a sudden deficit of at least a substantial proportion of the 3.5 million barrels a day of Iranian supply that feeds into the global chain.

 

There is a hard deadline for this to happen as well: July 1. That's when the EU has decided to begin its boycott of Iranian oil imports. Also, the U.S. has done a lot of work to gain at least some support for its cause from the biggest importers of Iranian oil: China, India and Japan.

 

So far, the president so far has been able to calm the Israelis, who have threatened to preemptively strike at Iranian nuclear targets. The administration has pleaded with them to wait for the boycott and economic sanctions to tighten the noose enough to get Tehran to comply with atomic agreements it has already signed.

 

In Iran, the leadership continues to act defiantly, threatening to close shipping lanes for oil and make preemptive strikes of its own, and declaring that nothing will deter its nuclear plans.

 

All of this leads to inevitably higher gas prices going through the hard deadline of July 1 unless lightning strikes and the Obama administration can solve this problem before then through diplomacy.

 

I wouldn't count on it: The last negotiation between Iran and the U.N. atomic agency, the International Atomic Energy Agency, lasted all of 18 hours last week before negotiators came to a roadblock and reboarded planes out of Tehran.

 

If you're a Republican candidate for President, this is an instant opportunity. The skyrocketing cost of gasoline is one of the few issues that will resonate with everyone.

 

Newt Gingrich recently promised there would be $2.50 gas if he was elected but neglected to explain how he would bring that about. This is a big step up from Michele Bachmann's promise of $2 gas and Donald Trump's claim of being ready to "tell the Saudis" what the U.S. is "going to pay."

 

All of these statements may sound ridiculous in the light of real facts about global oil markets, but a public suffering under gas costing $4-plus a gallon is going to listen very closely anyway.

 

So the president has a big political problem, one he surely wishes weren't coming to a head in an election year. So far, he has dealt with it by blaming supply threats and speculators. This is perfectly true and legitimate but likely to fall on deaf ears.

 

He does have some interesting tools he can use more effectively to combat high gas prices, but I'll wait to lay those out in my next column. I'll have lots of time to talk about them as I believe President Obama's political problems from high gas prices have only just begun.

 

TheStreet contributor Daniel Dicker is the president of MercBloc.

1Comment
Mar 7, 2012 10:28AM
avatar
This is propaganda, pure and simple. Prop up the dollar and gasoline goes down. The dollar is worthless.
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