$100 oil on hold

So much for $100 oil.  The war between Russia and Georgia — which had zero impact on oil prices last week — suddenly has put a floor under oil as the new week begins, at least for the moment.

The proximate reason is the shutdown of oil shipments (and all other shipments) from Georgian ports, coupled with Georgia's claim that Russia tried to bomb the Baku-Tbilisi-Ceyhan (BTC) pipeline that runs from the Azerbaijan to Turkey, through Georgia.

But here's something the markets aren't yet factoring in — the possibility that Georgia's pro-Washington president launched an attack on ethnic Russian enclaves in Georgia to create a diversion for Russia in the event of a U.S. or Israeli attack on Iran.

Let's back up for a moment.  Middle East newspapers are buzzing with reports that two U.S. aircraft carriers, the Roosevelt and the Reagan, are heading toward the Persian Gulf.  (The Lincoln is already there.)  The Roosevelt took part in war games along with British and French vessels off the U.S. East Coast a few weeks ago — a fact that leads a blog called Europe Business to speculate all three of those nations are preparing a naval blockade of Iran.  Here's what makes that so interesting:

There is a great fear that Russia and China may oppose the naval and air/land blockade of Iran. If Russian and perhaps Chinese naval warships escort commercial tankers to Iran in violation of the blockade it could be the most dangerous at-sea confrontation since the Cuban Missile Crisis. The US and allied Navies, by front loading a Naval blockade force with very powerful guided missile warships and strike carriers is attempting to have a force so powerful that Russia and China will not be tempted to mess with. This is a most serious game of military brinkmanship with major nuclear armed powers that have profound objections to the neo-con grand strategy and to western control of all of the Middle East's oil supply.

The Russian Navy this spring sent a major battle fleet into the Mediterranean headed by the modern aircraft carrier the Admiral Kuznetsov and the flagship of its Black Sea Fleet, the Guided Missile Heavy Cruiser Moskva. This powerful fleet has at least 11 surface ships and unknown numbers of subs and can use the Russian naval facility at Syria's Tartous port for resupply. The Admiral Kuznetsov carries approximately 47 warplanes and 10 helicopters. . . .

A strategic diversion has been created for Russia. The Republic of Georgia, with US backing, is actively preparing for war on South Ossetia. [Ed. note: This was written the day before the war broke out.]  The South Ossetia capital has been shelled and a large Georgian tank force has been heading towards the border. Russia has stated that it will not sit by and allow the Georgians to attack South Ossetia. The Russians are great chess players and this game may not turn out so well for the neo-cons. 

Of course, there's no telling if this is how it will play out.  The foreign-policy insider website Swoop ignores this scenario in its weekly Monday-morning briefing, focusing instead on what the lame-duck government in Israel might do.

At the July 30^th US-Israel strategic dialogue, US officials cautioned Israel against military action. However, they recognize that Israel will act according to its own interests, not in accordance with US instructions. A senior State Department official told us: “The reality is that we would not necessarily be able to detect an Israeli attack until shortly after it is launched.”

You'd think for $3 billion a year in aid, Washington might get a 48-hour heads-up to move forces into position.  But maybe not.

In any event, either of these scenarios — a U.S. blockade or an Israeli attack — could quickly drive oil from $117 to $200.  And of course, there are other scenarios under which it could happen, too.  We'll be keeping our eye on the ball here while establishment media focus on the Olympics and the extramarital affairs of former presidential candidates.