Oil at $120 Per Barrel on the Way to $200

Energy Sanctions, the Strait of Hormuz, and the Ukraine War

Reliance upon Middle East oil and the imposition of sanctions on Russian oil have destabilized the global economy. Iran’s tactically advantageous position on the Strait of Hormuz enables it to attack oil and gas shipping traffic to the world and potentially bring it to a standstill. Interestingly, the U.S. Navy’s substantial capability for war is not necessarily able to adequately defend oil tankers from cheap and plentiful drone and missile attacks launched from the coast, small fast-attack boats, and possibly naval drones.

Even China—the major buyer of Iranian oil—is affected by the U.S. naval counterattack on Iranian oil tankers moving through the Strait on their way to China. China will need to buy more Russian oil and gas, as will Europe, to replenish the loss of Persian Gulf state oil.

Plainly the West’s decision to wage prolonged confrontation with Russia in order to expand Ukraine and NATO—that is, to refuse recognition of traditionally Russian territories and interests—is counterproductive and self-destructive, as any rational person should have anticipated. Rebuilding the Nord Stream gas pipeline from Russia and the Druzhba (“Friendship”) pipeline to Central Europe, originally built in the 1960s, would allow Europe to be liberated from the perpetual vulnerability of an oil transport corridor passing through the Strait of Hormuz.

Russia would likely be willing to settle the Ukraine conflict with the surrender of the Donbas and Zaporizhzhia regions to its slowly advancing special military operation. Land east of the Dnipro River could become largely Russian in order to reconcile historical realities with political facts. Russia’s vast natural resources, combined with a cooperative Euro-American-Russian economic relationship, would provide a far more stable and affordable global fossil fuel supply. As it stands, the Ukraine war is a virtually insane luxury that Europe should not want to afford—not to mention the escalation of nuclear threats and the broader damage to the international economy.

Select irrational forces of the left will also seek to blame President Trump for the Iran war, since he determined that Iran’s efforts to redevelop nuclear weapons facilities needed to be curtailed. Iran was able to leverage the Ukraine war itself to build up its nuclear capacity, knowing it possessed the strategic leverage of potentially cutting off oil supplies to much of the world. When I asked an AI system how much oil Alaska can presently produce per day—roughly 477,000 barrels (possibly increasing to around 600,000 with additional effort)—and asked something about the Iran conflict, the Gemini AI system wrote something about a pedophile causing the Iran war for no good reason. It then became evident that AI systems themselves can be influenced by ideological programmers. When I challenged the answer, it simply replied, “no document found.”

The world is in a very dangerous and strange geopolitical place today. Oil could easily rise above $200 per barrel. At the same time, China will likely continue radically increasing the production of solar technologies and electric vehicles. Businesses may also shift toward electric vehicle fleets to reduce fuel costs.

It is therefore entirely plausible that the Ukraine conflict could be settled relatively quickly through the end of sanctions on Russia and the restoration of normal political and economic relations between the West and Russia—provided Russia offers assurances that it will not advance military power beyond the territories taken during the Special Military Operation.

Even then, Persian Gulf shipping could remain vulnerable for years. Irregular attackers, rogue militias, and leftover ordnance from past conflicts could continue to threaten the region’s shipping lanes long after the formal end of hostilities.

Global oil prices reached $147 per barrel in 2008 during the commodities crisis. Adjusted for inflation, that is roughly $200 per barrel, so the possibility of $200–$300 oil exists if sanctions on Russia continue and the Strait of Hormuz remains a strategic chokepoint. The Alaska oil pipeline from the North Slope was developed as a consequence of the 1973 Arab oil embargo, which caused oil prices to jump from $3 per barrel to $12 per barrel—a 300% increase.

The west needs to learn to tolerate success and victory. It failed to do that when Russia and China accepted at least capitalism after the end of the Cold War and Russia actually began implementing constitutional democracy. Political actors worked hard to restore the antipathy and could never fully actually and support rational sharing with Russia of its traditional Ukraine land and economic interests and instead expanded N.A.T.O. to Russia’s borders. If the west cannot tolerate successful policy redirection from the top as President Reagan, RIchard Nixon and Henry Kissinger catalyzed it is consistent that it would compile 40 trillion dollars of public debt and build toward economic chaos globally.