Gas at $4.50 — is the Iran Blockade Making it Worse? (3 of 5)

True to Trump’s tendency to speak in hyperbole, he has claimed that Iran has got “inflation that nobody’s ever seen before.” Apparently he isn’t familiar with that time Zimbabwe had to print out a 100 trillion dollar banknote to keep up with inflation (which wasn’t even enough to buy a loaf of bread). Or how post-WWI Germans were carting bundles of Deutschmarks around in barrels. But we digress.

The truth is, the blockade isn’t actually having any current impact on Iran’s revenues. The way it works is, when crude oil from Iran sails to places like China, it takes around two months to reach its destination. China then has two months to pay the Iranians. In other words, the current blockade won’t have any discernible effect on Iran’s bottom line until four months from now, which provides zero consolidation to Americans who are suffering economically due to prices at the gas pump. As a result, when it comes to a decision on a deal, Iran holds a lot of the cards.

The CEOs of Chevron and Exxon Mobil, Mike Wirth and Darren Woods, respectively, have expressed concerns that unless we are able to reestablish the oil supply, we will have to hope for a reduction in demand across different sectors to offset the high prices. Furthermore, even if the Strait were to reopen today, it would still likely take two months for oil flows to return to pre-war levels and an additional month for that oil to be available to the consumer. At this stage, the markets would take the reopening of the Strait even if it meant getting a bad deal.