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Ahmadinejad Fanning the Flames

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Oil prices rose to $125 on Monday after MEND rebels blew up two pipelines. The MEND rebels said they were attacking to refute rumors that the government had paid them off to halt attacks. The pipelines belonged to Shell and the company said they were shutdown to prevent additional spillage. Meanwhile Iran's president finally found his speaking voice and said Iran had doubled its nuclear enrichment program but he was willing to listen to any new offers from the United States.

Ahmadinejad is such a politician. We will never give up our nuclear heritage and to prove it we have doubled the number of centrifuges in operation to 6,000. His tone in this speech was warlike and defiant. Shortly thereafter in a different speech he was calm and conciliatory claiming he would welcome a "new approach" from the U.S. in seeking a peaceful resolution to his country's nuclear ambitions.

Let's see if I can translate. After a week of quiet after the U.N. meeting Iran doubled the size of their program and claims it will never be shutdown. Then Ahmadinejad signals he is ready to deal with the US when the US has told him in no uncertain terms there will be no discussions until the enrichment is halted. For those who don't follow the rhetoric his willingness to deal makes him sound like he is moderating. For those who understand his claim may as well have been "when hell freezes over we will talk about halting the program."

Secondly by raising the stakes and announcing they now have 6,000 centrifuges instead of the prior 3,000 in operation it means the U.N. group will have to raise its offer in order to meet his raised effort. If you only had 50 centrifuges it would take a decade to make enough uranium to make a difference. With 6,000 it could take a year. This increases the urgency for those trying to keep Iran from making a weapon.

Also you have to wonder why Ahmadinejad would publicly raise the ante and increase the hostility toward Iran when he could have quietly let everyone think he only had 3,000 working and therefore there was no rush to halt the program. It almost confirms he is baiting the U.N. in hopes of getting some new offer to make it worthwhile for Iran to "claim" they are halting the program. Nobody really expects them to stop even if they say they have stopped. The program will continue in secret somewhere else and nobody is stupid enough to believe any different. However, once Iran claims they halted the U.N. will shift into the verification mode and waste another couple years playing cat and mouse with Ahmadinejad like they did with Saddam and his weapons of mass destruction. These speeches by Ahmadinejad today are just another chapter in his rope-a-dope strategy. Claim loudly to raise his stature in the Middle East then hide behind the mindless answers of his front men while the U.N. group verbally berates him and threatens further sanctions. Just the verbal attack by the various U.N. countries builds him up in the eyes of those around him. He must be a bigshot to warrant such attention. Eventually something will change and he will either be attacked, halt production or be removed from office. Until then we can expect oil prices to rise whenever he steps up to a podium. Of course that helps him as well as the price of Iran's oil rises.

In the U.S. the Transportation Dept announced that Americans drove 9.6 billion fewer miles in May than they did in May 2007. That was the biggest drop ever for a summer month. Year to date we have driven 29.8 billion fewer miles. This is demand destruction in its purest form. The CFTC said for the first time in 17 months more speculators are shorting oil than buying it. Of course those shorts could power another big spike if something happens in the news like a hurricane to boost prices. Heavily shorted markets are always primed for an explosion.

Jim Brown

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