Treasure of Khan

"But where do we go from here?" Eli asked.

"That's the sixty-four-dollar question, or one-hundred-twenty-five-dollar, rather, in our case. We're dealing in fear at the moment, driven by uncertainty. And fear has a habit of producing irrational behavior that isn't easy to predict." Clayton stopped and took a sip from her coffee. She had her audience hanging on every word. Though her attractive looks always drew attention, it was her knowledge that had the crowd enraptured now. She savored the taste of power for a moment, then continued.

"Make no mistake. The destruction at Ras Tanura is going to leave a devastating mark around the world.

On the home front, there's going to be an immediate whack to the domestic economy that will rival the post 9/11 downturn. When that one-hundred-twenty-five-dollar barrel of oil trickles down to seven dollars for a gallon of gas next week, Joe Consumer is going to park his Hummer and start riding the bus.

Higher prices for everything from diapers to airline tickets will ripple through the economy. No one is prepared for that degree of run-up in price, which will throw a roadblock to consumer purchasing in short order."

"Is there anything the president can do to help?" Eli asked.

"Not much, though there are two things that might soften the blow. Our country's Strategic Petroleum Reserve is now sitting at full capacity. If the president so elects, he could draw down on the reserves to replace some of the shortages from Saudi Arabia. In addition, the drilling in the Arctic National Wildlife Refuge approved by the prior administration has now come on line, so the Alaska Pipeline is now ru

"What can we expect in the long term?" he inquired.

"While we can't forecast the impact that fear will have on the markets, we can predict the dynamics of supply and demand that will ultimately prevail. The spike in price should soften current levels of demand over the next few months, easing the pressure on oil prices. In addition, the other ten OPEC countries will clamor to make up Saudi Arabia's lost exports, though it is unclear whether they have the infrastructure to cover the shortfall."

"But wouldn't OPEC want to keep the price of oil over one hundred dollars?" Eli pestered.

"Sure, if demand stayed constant. But we're going to face a sharp economic contraction as it is. If the price was maintained at one hundred twenty-five dollars arbitrarily, you would see a global economic collapse rivaling the Great Depression."

"You don't think that's in the cards?"

"It's possible. But OPEC doesn't want to see a worldwide economic collapse any more than the industrialized nations do, as that will reduce their revenues. The main concern today is still one of supply.

We witness another supply disruption, then all bets are off."

"So what's the investment play?" Eli asked pointedly.

"Initial estimates from Ras Tanura suggest that the shipping terminals can be repaired or replaced within six to nine months. My trading recommendation would be to short oil positions at the current price, with the expectation that pricing will retreat to more moderate levels within nine to twelve months."

"You're sure of that?" asked Eli with a hint of skepticism.

"Absolutely not," Clayton fired back. "Venezuela could be hit by a meteorite tomorrow. Nigeria could be taken over by a fascist dictator next week. There are a thousand and one political or environmental forces that could disrupt the oil markets in a heartbeat. And that's the u

Harvey opened the window shades, letting in a blast of sunlight that made everyone in the room squint for a moment.

"Jan, my desk trades in global equities," stated a short blond woman in a garnet-colored blouse. "Can you tell me which countries are most vulnerable to the reduced Saudi oil exports?"

"Sandra, I can only tell you where the Saudi oil exports are currently going. The U.S., as you know, has been a prime customer of Saudi oil since the 1930s. Washington has long pursued a goal of reducing our reliance on Middle East crude, but Saudi oil still accounts for nearly fifteen percent of our total imported oil."

"How about the European Union?"

"Western Europe obtains most of their oil from the North Sea, but Saudi imports do play a factor. Their proximity to other suppliers should mitigate severe shortages, I believe. No, the hardest-hit countries will be in Asia."

Clayton drained the last of her coffee while she pulled up a file on her computer. She curiously noted that the occupants of the entire room remained seated and listening to her every word.

"Japan will feel a major jolt," she said, sca

"And China?" an anonymous voice asked. "What about that fire near Shanghai?"

Sca

"The Chinese will be facing a similar shock. Nearly twenty percent of China's oil imports come from Saudi Arabia," she said, "all of which arrives by tanker ship. I haven't assessed the impact of the fire at the Ningpo oil terminal, but I can only speculate that combined with the Ras Tanura disaster, the Chinese will be facing a major hurdle in the near term."

"Are alternative sources available to the Chinese?" a voice in the back asked.

"Not readily. Russia would be the obvious source, but they are more inclined to sell their oil to the West and Japan. Kazakhstan might provide some relief, but their pipeline to China is already at capacity. I think there could be a dramatic impact to the Chinese economy, which is already suffering a shortage of energy resources." Clayton made a mental note to review the Chinese situation in more depth when she returned to her office.

"You mentioned domestic fuel shortages earlier," a pasty-faced man in a purple tie asked. "How severe will that be?"

"I would expect only temporary shortages in limited areas, assuming no other market impacts. Again, the main problem we are facing is fear. Fear of another supply disruption, either real or imagined, is the real culprit that could drive us to a complete meltdown."

The meeting wound down as the crowd of financiers glumly scurried back to their gray work cubicles.

Clayton gathered her laptop and headed for the door as a figure drew up alongside her. Turning her head, she gazed with apprehension at the slovenly figure of Eli, a doughnut crumb on his tie.

"Great meeting, Jan." Eli gri