The price of oil jumped $4.58 a barrel yesterday. The WSJ reports, “Futures rebounded Wednesday as an unexpected, 3.5 million-barrel drawdown in gasoline stocks for the week ended July 25 highlighted the resilience of U.S. demand.” Sorry, I don’t buy this story. Gasoline demand is falling in the US and the global economy is getting weaker. The supply of oil is plentiful right now. I believe that the swings in the price of oil in coming days and weeks will be driven by speculators in the Middle East who might be in a much better position to assess the odds of a confrontation in the Strait of Hormuz. I doubt the US would blockade Iran’s exports of crude oil. But the Iranians might retaliate, for either sanction on their gasoline imports or an actual blockade, by cutting off their exports of oil anyway, though I doubt it. I also doubt that they would take on a US naval blockade.

If push does come to shove in the Middle East, then the price of oil would initially soar. The stock market would plunge. It would be a great buying opportunity for stock investors because the US would immediately open up the Strategic Petroleum Reserve. Other countries would do the same with their SPRs. I believe that any such confrontation with Iran would be very short, as Iranian negotiators scramble to find a face-saving way to stop enriching uranium. An internally-led regime change is conceivable. The stock market could have a huge rally if Iran finally gets its long-overdue comeuppance.