War in Our Back Yard? (Updated)

A few weeks back when I was a guest host on the Ricochet podcast, I asked retied Lt. General (and former national security adviser to President Trump) H.R. McMaster whether there are any potential “sleeper” conflicts out in the world that we aren’t paying attention to because of Ukraine, Gaza, China, etc. I mentioned specifically Venezuela and Guyana. McMaster agreed it is certainly possible.

I note this from economist John Mauldin’s weekly (free) newsletter:

Venezuela and Guyana are probably not on your bingo card but they should be. A source tells me two Russian military vessels are heading to Venezuela near Exxon’s offshore rigs. Totally legal. The Venezuelan military is acting like it intends to invade Guyana. Maduro evidently thinks that the US will not impede them, and Putin and Xi are certainly encouraging him. Whether or not the US decides to get involved, significant disruption to oil production is likely if there is a conflict. My sources tell me that the South American situation is more volatile than markets are currently pricing.

A spike in oil prices to over $100 is well within reason if there is a conflict in either Guyana or in the Middle East. This is clearly inflationary for the entire world, except possibly for China which has locked in its prices for Russian exports. And there would not be much help from the strategic petroleum reserve since we already tapped much of it when prices rose two years ago. Note that demand for oil is recently rising in concert with historical trends going into the summer which should keep demand strong.

UPDATE—From Barron’s this morning:

Oil Prices Waver After Iran’s President Dies, Saudi King Falls Ill

Oil prices wavered Monday after Iran’s President Ebrahim Raisi died in a helicopter crash Sunday, according to state-run Press TV. But the oil move was fairly muted in early trading.

Iranian foreign minister Hossein Amir-Abdollahian was also killed along with several other passengers after the helicopter made a “difficult landing”in the northwest of the country, state TV reported. Iranian rescuers searched the site, battling bad weather, but found no signs of life, Iran’s interior minister Ahmad Vahidi told state TV.

Separately in Saudi Arabia, one the world’s biggest exporters of oil, King Salman has been diagnosed with a lung infection and is set to undergo treatment, Saudi Press Agency reported early Monday.

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