The Morning Rant

The amazing success of free markets can be traced through history, and their record is unblemished. That is not to say that they are perfect for all, because as Adam Smith pointed out 250 years ago, it is the millions of individual decisions that drive beneficial outcomes, and not all of those decisions are the best decision.

And...the fluctuations in supply and demand caused by those decisions can cause dislocations across the entire economy, as we see today with the price of petroleum, which has a massive global market and is an excellent example of market pressures at work.

But market economies do not work as well when they are constrained by regulation. Not regulation that controls damage to the public sphere, but regulation that impedes the natural growth of the economy. When businesses must navigate a labyrinth of sometimes competing regulations that do nothing but increase the cost of the project and increase the gap between investment and profit, they are naturally reticent.

Add in governments that are not committed to the freedom of global commerce, and the pressures to expand are overwhelmed by the easier, risk-averse, but potentially less lucrative work to improve efficiency and take advantage of rent-seeking.

Why US Oil Companies Are Holding Off on Drilling New Wells

“We’re seeing a combination of trying to reopen the Strait [of Hormuz] while simultaneously recognizing that there are going to be alternative routes to get oil and gas to market, including expanding production in new places and expanding production in the United States,” Caleb Jasso, policy expert at the Institute for Energy Research, told The Epoch Times. “The world as a whole is really reevaluating global energy supply chains and the need for a greater level of diversification.”

Thus far, however, America’s oil industry has remained cautious, holding off on major new investments and focusing instead on increasing output from existing wells. The combined number of oil and gas rigs operating in the United States declined from more than 700 in May 2023 to 558 today, according to Baker Hughes, an industry analytics firm. And while the oil rig count has increased from 410 at the beginning of this year to 429 as of May 29, most producers remain reluctant to pour significant money into new wells.

Capital intensive industries like petroleum (and semiconductors!) cannot function efficiently on a four-year political timeline. Global markets cannot function efficiently, or sometimes at all on those timelines, when freedom to conduct commerce across the globe is held hostage to the political winds in Washington or Peking or Tehran.

It is very easy to throw up one's hands and say, "Let's just get the hell out of the Middle East!" And based on the less than stellar outcomes of our adventures of the past 25 years, that is a rational thing. Nation Building^TM has been thoroughly discredited, and has, hopefully, been thrown into the dustbin of history, at least until the next president with delusions of grandeur and no common sense decides that Shitcanistan must become a Jeffersonian Democracy, and uses our blood and treasure! And the current situation in the Strait of Hormuz is in all probability a temporary dislocation, as the world scrambles to find alternative methods of transport.

But there is another Strait of Hormuz lurking out there, and another after that one. Even if we fix the issue of a chaotic regulatory landscape and give the economy freedom to plan past the next election, trade routes that can be closed at the whim of despots or 7th century savages is an issue that will never go away.

President Trump's actions against Iran may be politically difficult, but there is no looming occupation of Iran, and the goal of denying the Mad Mullahs and their IRGC handlers a nuclear weapon is unequivocally good. That he is simultaneously degrading their ability to affect global commerce is also an unalloyed good.

Now if we can only get Congress to get off its collective ass and do something about the regulatory miasma!

[Crossposted at CutJibNewsletter and X/Twitter]. If you folks who are on X/Twitter would follow us it would be much appreciated!

posted by CBD at 11:00 AM

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