Why a Supply Crunch From Iran Could Send Oil Back Below $40 a Barrel

There have recently been many warnings about near-term oil shortages stemming from the conflict in Iran. Most analysts assume that shortages mean higher prices. As I will explain, the dynamics of a self-organizing economy suggest the opposite outcome — lower prices, deepening recession, and shortages of goods and services that have little to do with price. A cartoon scene featuring a bluebird on a cliff, looking confidently at a surprised coyote who is about to fall off the edge, with a yellow sky in the background. Figure 1. Wile E. Coyote…