Why a Supply Crunch From Iran Could Send Oil Back Below $40 a Barrel

AI Summary

Analysts warn that near-term oil shortages from Iran-related conflicts could paradoxically lead to lower oil prices due to economic contraction. The situation illustrates complex interactions between supply disruptions and global economic dynamics.

There have recently been many warnings about near-term oil shortages stemming from the conflict in Iran. Most analysts assume that shortages mean higher prices. As I will explain, the dynamics of a self-organizing economy suggest the opposite outcome — lower prices, deepening recession, and shortages of goods and services that have little to do with price. A cartoon scene featuring a bluebird on a cliff, looking confidently at a surprised coyote who is about to fall off the edge, with a yellow sky in the background. Figure 1. Wile E. Coyote…