Zaharoff Lives

Saudi Arabia has announced it will buy 84 American F-15s to “counter Iran’s regional influence.” The F-15 predates disco. A thousand of them couldn’t counter the regional influence of Nantucket. Doubly so since the RSAF has already ported to Tornados and Eurofighters. This is Cash For Clunkers at $357,000,000 a clunk. And they only cost about $40,000,000 a pop *new*.

What gives?

Earlier today the Kingdom announced that if Iran’s petrochemical exports were sanctioned – or, y’know, exploded – it would increase oil production to cover 100% of the shortfall. Even so, the price of oil is trading very high: Brent crude (al’Ghawar standard) is spotting at 108 1/3. Iran produces about 4.1 million barrels of oil a day. They use about 1.6 million domestically. The remainder is export: 2.5mbbl. That’s $275,000,000 a day at current prices.

If the Saudis are going to cover an Iranian shortfall, we will need to pay them about 275 million dollars a day. That’s a lot of petrodollars. Especially in the middle of the biggest liquidity crisis in eighty years. Really, we just can’t afford it. But while we don’t have cash, we do have lots of surplus Vietnam-era military hardware. We didn’t have the money, so they offered to sell us their oil for trade.

The difference between the paid value and the flyaway value of the RSAF’s new F-15s is pretty damn near the cost of a day’s closure of the Straights of Hormuz. These 84 fighters aren’t a military asset. They’re a promissory note against a three-month military blockade. Riyadh is offering to finance Washington in a war against Teheran.

Don’t let anyone tell you otherwise: there can still be war in a global economy. Even between trade partners. In some ways it’s even easier, because more trade means more alternative sources of goods. The only real difference is that now you can spot the war before it comes. If only you know what to look for.

Sources:

WARPLANES: Al’Jazeera:

http://www.aljazeera.com/news/middleeast/2011/12/20111229171349492933.html

OIL COVERAGE: Bloomberg Business:

http://www.businessweek.com/ap/financialnews/D9RTJQ500.htm

F-15: National Museum of the US Air Force:

http://www.nationalmuseum.af.mil/factsheets/factsheet.asp?id=621

PRICES: Bloomberg live ticker:

http://www.bloomberg.com/energy/

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~ by davekov on 29 December 2011.

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