Middle East

The Middle East and Us

Almost 3 months into the wave of unrest in the Middle East and we’re staring at events like a deer in headlights. It might be a good time to take stock of how events might play out.

The best case scenario for an American economic recovery, avoidance of inflation, and $6 gasoline?
Moderation. Ghadifi quietly leaves Libya. A compromise between the separatists and the former cabinet and military. Eqypt remains somewhat quiet and their military fulfills promises of Mubarak crony removals and elections.

But those two possibilities are far less than certain. I’d give them less than 40% probability right now. Libya’s important production of light sweet crude oil will come offline for some time. Today I passed my first sign for $5.00 gasoline in San Diego, CA.

The more troubling events could occur in Saudi Arabia. The mere fact that government troops are firing rubber bullets at crowds is chilling. Despite the royal family throwing billions at the less advantaged citizens the groundswell from the educated population could destabilize the largest exporter of oil in the world. Crux facts: there is a huge concentration of the Shia minority around the Saudi’s oil production and shipping locations. Just like Benghazi in Libya, it’s strategic.

So what?


Oil prices spike to $200 or perhaps beyond.

Oh yeah, you might not have been born then or you are too young to remember. Lines around blocks at gas stations (and there were almost 3 times as many as we have today with a population half the size). Declaration of a national crisis. Rationing. Price controls. Gas cans in auto trunks. Third world stuff.

Then, in the years that followed, runaway inflation coupled with a recession and double-digit interest rates. I was running a business in a market with real resistance to price increases when my operating line of credit went to 22%. It’s one reason I never, ever again want to make payroll for more than 40 people.

Worse, the US government can’t absorb a huge spike in what it pays to service the debt. The dollar will be wiped away as the world’s reserve currency, capital will leave the country, and the 1930’s will repeat and potentially be even more catastrophic.

I’m not saying the scenario is likely. I think it is still less than 30% probable but that probability increases daily to the point where we want to think through implications and actions.

In a recent Twitter post I pointed out a NY Times article on a fellow who’s gone “off the grid” in Texas by living in the desert on solar and wind power and capturing rainfall for water. Funny thing is that it’s both one of the most read and most e-mailed articles on the publication at this writing.

More in the days and weeks ahead. Hope for moderation in the Middle East and some leadership in our country. This could become a perfect catalyst for us to take steps to begin resolving our financial, energy, and world dominance issues.