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America Runs on Diesel — and That Means Trouble |
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Dear reader, |
America runs on diesel… as the phrase runs. |
Its tractor-trailers, its locomotives, its maritime vessels, its construction and farm equipment — all of which grease the gears of American commerce — guzzle diesel. |
And the present Persian Gulf tumult is playing the devil with diesel prices. |
The average United States diesel price exceeds $5 the gallon. That is the highest price since 2022, when Mr. Putin's foray into Ukraine discombobulated energy markets. |
Bloomberg projects that United States industry will purchase some $6.1 billion of diesel fuel this week. |
Prior to Feb. 28's onset of hostilities, the identical quantity of diesel fuel was on offer for $4.5 billion — some 35% less. |
Diesel Prices Affect Everything |
Here is a question: When industry confronts elevated fuel prices… who ultimately absorbs these costs? |
That is correct. You, the consumer, ultimately absorb these costs. |
Here Mr. Paul Dietrich of Wedbush Securities declares what is obvious. |
Diesel is what moves the real economy. It hauls the food, the packages, the building supplies and the inventory sitting on store shelves… |
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If the Iran war keeps diesel prices elevated, this becomes a direct hit on consumer prices. Groceries get more expensive, delivery costs rise and household budgets are tightened. |
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Inflation is a tax of sorts, an insidious yet unofficial tax. How high might inflation run under diesel pressure? |
Nationwide chief economist Kathy Bostjancic divines that the Consumer Price Index may skyshoot to 4.4% in the coming months — miles and miles from February's 2.4%. |
Like all divinations, this divination is subject to the errors and misreadings common to the practice. |
Yet I hazard a 4.4% inflation ranges well within reason's boundaries. |
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So Long to the Fed's 2% Inflation Target |
Please spare a tender thought — if you can — for the poor Federal Reserve. For the poor, poor Federal Reserve. |
As soon as it believed it was seizing inflation by the collar, as soon as it believed its 2% inflation nirvana was within sight… a global energy upheaval may knock it clear out of sight. |
Of course the diesel menace, and its attending inflation menace, may prove temporary bugaboos — under one condition. |
What is that one condition? |
If the Hormuz Strait soon opens for general transit. Alas, it does not appear that the Hormuz Strait will soon open for general transit. |
That is because the waterway's gatekeeper, Iran, is determined to refuse passage to all but approved shipping. |
The Iranian strategy, to these two eyes, is clear as gin. |
It is to out-endure the United States. |
Iran's Leverage Over the U.S. |
Iran realizes it cannot resist the relentless aerial onslaughts of the United States and Israel. It withers daily under the pummelings, helpless as an overturned turtle. |
Yet it can — and is — kinking off some 20% of the world's oil flow, with all the economic consequences that follow. |
Thus the Hormuz Strait is Iran's mightiest leverage point. |
And Iran is determined to retain that leverage as long as it can wield it. |
You may label it Iran's "asymmetric strategy" that offsets the material might of its tormentors. |
It does not require a mighty navy. The mere threat of naval mines, naval drones, explosive-laden speedboats and shore-based missiles can work the trick. |
These items are not costly. And Iran is loaded to the gunwales with them. |
Only an exhaustive and comprehensive campaign by the United States Navy can mitigate the menace — and not entirely. |
The effort would require time. And Iran wagers that time is with it. It wagers that if it can absorb the American blows, without succumbing, it emerges victorious. |
Iran's "Rope-a-Dope" Strategy |
Thus its strategy is the defensive "rope-a-dope" strategy of the besieged boxer. |
It lounges against the ropes, absorbing and parrying blows, as its opponent depletes his own energy stocks. |
Iran hopes the American behemoth will deplete itself. |
And it is aware that the American president blows an uncertain trumpet. He may demand unconditional surrender one day… while announcing victory the next. |
Iran hopes the American will simply announce victory and sail away. |
Will Iran's strategy prove viable? Can Iran truly endure the American and Israeli battering? |
Can the regime maintain its apparatus of domestic control and coercion after prolonged aerial bludgeonings? |
Will the regime's apparatus of domestic control and coercion remain loyal under terrible privation? |
I do not know the answers. Yet the Iranian regime's "rope-a-dope" strategy is fraught with peril and risk. |
It risks defeat by knockout. |
Iran's Risk |
Geopolitical commentator "Big Serge": |
It is entirely possible… that Iran's bet on the state's ability to endure comes up bust. Iran has, to this point, showed a "next man up" mentality and a willingness to simply absorb losses… |
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To be sure, state collapse is much harder to induce than one might think, but it remains an open possibility that continued blows to regime infrastructure and personnel will lead to a death spiral of capability and command dysfunction. |
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The Iranian state… will not survive for long if it cannot demonstrate that it can both endure America's haymaker and exact asymmetric costs in response… |
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A cash crunch leaves the IRGC unable to pay its personnel. Riots break out in Tehran and the security forces lose control. The ruling group collapses as one member after another dies in a heap of rubble… You can just bomb a country until it works for you. |
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If Diesel Prices Are High Now… |
Yet the described scenario, if even a reality, is likely months distant — perhaps several months distant. |
And so the Hormuz Strait may remain gated for several months, absent a negotiated opening. |
I concede the possibility of a negotiated opening. Yet I lack confidence you will see it soon. |
I opened this article referencing diesel fuel. And so I conclude this article referencing diesel fuel. |
If the price of diesel fuel exceeds $5 now… after a mere two weeks of supply disruption… where might the diesel price register after months of supply disruption? |
And given diesel's centrality to the United States economy, can the United States economy pay that price? |
Indeed, can you pay that price? |
Brian Maher |
for Freedom Financial News |
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