John Rubino writes a must-read article regarding the Middle East, the oil market and the stock market. What kind of a mess are we facing and how did we get here?

We Are So Not Prepared For Another Oil Shock

Courtesy of John Rubino.

In one sense, energy doesn’t matter all that much to what’s coming. Once debt reaches a certain level, oil can be $10 a barrel or $200, and either way we’re in trouble.

But the cost of energy can still play a role in the timing and shape of the next financial crisis. The housing/derivatives bubble of 2006 -2008, for instance, might have gone on a while longer if oil hadn’t spiked to $140/bbl in 2007. And the subsequent recovery was probably expedited by oil plunging to $40 in 2008.

With the Middle East now lurching towards yet another major war, it’s easy to envision a supply disruption that sends oil back to its previous high or beyond. So the question becomes, what would that do to today’s hyper-leveraged global economy? Bad things, obviously. But before looking at them, let’s all get onto the same page with a quick explanation of why everyone seems so mad at everyone else over there:

The story begins in 570 A.D. in what is now Saudi Arabia, with the birth of a boy named Muhammad into a family of successful merchants. After having some adventures and marrying a rich widow, around the age of 40 he begins having visions and hearing voices which lead him to write a holy book called the Qur’an. More adventures follow, eventually producing a religious/political system called Islam that comes to dominate a large part of the local world.

In 632 Muhammad dies without naming a successor, creating a permanent fissure between the Shi’ites, who believe that only descendants of the Prophet Muhammad should run Islam, and the Sunnis, who want future leaders to be chosen by consensus.

Now fast forward to the end of World War I: British leader Winston Churchill sits down with some other old white guys to draw a series of rather arbitrary lines through the Middle Eastern territories recently captured from the Turkish Ottoman Empire. They name their creations Jordan, Syria, and Iraq and appoint kings to rule them. Unfortunately, the new borders enclose both Sunnis and Shi’ites, along with Kurds and Christians who don’t get along with either kind of Arab Muslim. Shortly thereafter, Israel is tossed into the mix and massive but unequally-distributed oil fields are discovered, pretty much guaranteeing instability for as far as the eye can see.

Keep reading at John’s Dollar Collapse blog here >

Picture source.