Oil Price Rises on Threat of Turkey Invading Iraq
Uh oh. Oil up. Dow down. Gold screams higher. What next?
“Oil price approaches US$90,” Bloomberg reports, “Crude oil rose above US$86 a barrel for the first time in New York on concern Turkish forces may pursue Kurdish militants in Iraq, curbing shipments as refiners prepare for the peak-demand heating season.”
Well there you have it. A Turkish invasion of Northern Iraq would be just the sort of historical monkey wrench no one saw coming. Oil doesn’t need a whole lot of impetus to march higher. Geopolitical tensions only add to an already powerful mix of upward price pressures.
Oil—like nearly all commodities—is also rising because the supply of US dollars is rising faster than the supply of raw materials. The supply of US dollars keeps growing because the US keeps spending money it doesn’t have. And strangely enough, non-US investors keep lending the US government money, via the bond market.
UBS Securities reports that the US Treasury Department will try and hawk nearly US$220 billion in new bills, notes, and bonds in the next fiscal year (the fiscal year for the US government begins in October). That’s just new debt, and marks a 50% increase over last year’s figure. But don’t forget about the old debt that matures during the year and must be rolled over.
Dan Denning
The Daily Reckoning Australia
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). Dan draws on his network of global contacts from his base in Melbourne. He’s the managing editor of resource newsletter Diggers and Drillers and the editor of The Daily Reckoning Australia.
Comment by dubious pete in melbourne on 17 October 2007:
...rolled over.
ergo why the U$ govt lies about true inflation as it must keep interest rates low to be able to pay its 2% margin TIPS- inflation linked bonds.
ergo the bubble just gets bigger.
Comment by Coffee Addict on 17 October 2007:
I expect that the Turks will establish a buffer zone then ask the Coalition of the Willing to fill it as a condition of withdrawal. (The Turks are now effectively asking the US to establish a buffer zone as a condition of not gong a few kilometres into Iraq.)
The Turks certainly have no desire to go anywhere near oil production and distribution facilities. Why? It's not in their interests. The oil price rise is consequently unjustified (from a market perspective).