March 9th, 2012
01:48 PM ET

Zakaria: Why oil prices keep rising

Hundreds of you have submitted very thoughtful questions for me through FacebookTwitter and my blog. Over the next few days, I am going to post my text and video responses to some of the most common questions and a few others that caught my eye.

The rising price of oil is the single most serious threat to the global economic recovery, the U.S. economy and President Obama's reelection prospects. Right now, we are beginning to move into a pretty broad-based recovery. Manufacturing is rising for the first time in 25 years. Technology firms are doing very well. Retail is picking up.  The green shoots of the housing recovery are emerging and that's very important because housing has led almost every recovery since World War II. .

But all the while that you have this economic good news, you are beginning to see oil prices rise quite substantially.  They're up about 15 percent over the last few months. And that could put a damper on all this good news. Why is the price of oil rising?

Zakaria: Iran is a "rational actor"

It's happening for one reason, principally and that is geopolitical risk.  There are fears of a war with Iran and  fears that crippling sanctions on Iran would cut down Iranian oil exports almost entirely.

If you look at demand for oil, it's just not that strong.  Much of the world is in slower economic times than before.  In January 2007, oil was $50 a barrel. It's now $110 a barrel. This doesn't make any economic sense unless you factor in geopolitical risk. So for oil prices to decline, there must be some resolution to the tensions with Iran.

But there is a broader problem, which is that there just isn't that much oil on the market and demand is going to begin to rise again as many countries come out of their recessions and into recoveries.

Zakaria: Another war in the Middle East?

There isn't that much of what's called "spare capacity" - the ability to increase production quickly.  The only ones who have it are Saudi Arabia and they are operating at their limits in some ways.

So there are economic fundamentals that explain why oil prices are high - but not why they are so high.  The reason they are so high is really Iran, Iran and Iran.

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Topics: Economy • Iran • Oil

soundoff (407 Responses)
  1. San Fernando Curt

    Since the U.S. and Israel are doing all the smack talk, trying to goad Iran into a war, wouldn't it be prudent to cool it for awhile. War with Iran is not in best interest of the U.S. We have nothing to fear from Tehran. Israel and its powerful domestic lobby are pushing this war. Let's bail on them. And, yes, the oil price rise is mostly linked to speculation. Duh!

    March 13, 2012 at 7:23 pm | Reply
  2. elitistnot

    I don't care how much people speculate about oil and I don't care about how much they screw around with Iran. maybe 10% of the price of oil is speculation and fear. 15% if you want to stretch it. So, where is all the oil going? All I have to do is look at China and India where the middle class are buying more cars that any other region in the world's history. GM has opened up something like 9 auto plants in Asia in the past couple years alone (that was while they were being bailed out in the US and closing plants in America by the way). Ford has followed suit as well. China is on the verge in less than a decade to surpass the US as the world's largest consumer of oil. India is not far behind. Other parts of Asia are also experiencing great wealth expansion. What does the media (like CNN) think Asia does with great wealth expansion? Buy more bamboo rickshaws? Nope. They buy lots and lots and lots of cars and oil products like plastics.

    March 13, 2012 at 10:15 pm | Reply
    • elitistnot

      Also China and India account for 50% of all the luxury goods consumption in the world. Gucci, Chanel, etc are tripping over themselves to expand into these regions and reap massive rewards. The US alone does no even account for anything close to 50% of the consumption all the world's luxury goods. You want to sell cars, expensive hand bags, jackets, anything really... look to Asia. That is where all your oil is going. China is striking deals with Iran while the US jerks around with them. China is striking deals with Canada while the US jerks around with the pipeline idea. China is striking deals around the world while the US spends, yet another, decade jerking around doing nothing productive.

      March 13, 2012 at 10:24 pm | Reply
  3. John

    Natural Gas is not traded on the open market, electricity is not traded on the open market, water is not traded on the open market. Why is oil traded on the open market? It's because 20 years ago some rich politicians decided they could become richer and BS'd that trading oil would make prices come down. Ya, how's that working out now? We only get 10% of our oil from Syria yet the problems there are making the price of oil skyrocket? BS! Fn BS. Whats making the price of oil skyrocket is oil being traded on the open market where it does not belong.

    March 13, 2012 at 11:41 pm | Reply
  4. David Marriott

    That's an easy one! Canada is our single largest supplier of imported oil into our country and since Obama spent us out of existence with a new $5 trillion recod that he added to the national deficit, U.S. dollars are now worthless than canadian dollars! Mexico is our second largest oil supplier and their Peso has caught up significantly too! The U.S . gets alomost none of its oil from the middle-east! This geopolitical nonsense is a smoke screen for the failed policies of the Obama administration! ...what else would you expect from CNN! ...LOL

    March 14, 2012 at 5:49 am | Reply
  5. krehator

    Because they want more profits. Every other excuse is a smoke screen.

    March 14, 2012 at 7:43 am | Reply
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