CNN invited me on air on Sept. 1 to talk about energy prices heading into the midterm elections, with a closing question on what’s happening in the bond market. Here’s the clip. Takeaways follow.
Expect elevated gasoline prices of $4 per gallon or higher through the midterm elections on November 3. Iran clearly wants to punish Trump for starting the war back in February by continuing to disrupt Persian Gulf oil flows, keeping prices high, and forcing Trump to face a reckoning with American voters.
What happens after the midterms? The Trump sanctions, the blockade of Iranian ports, and occasional military strikes continue to harm Iran, and its economy is tattered. If Iran is going to seek a way out, it’s likely to happen after the midterms.
[It’s time to revise the American Dream]
Iran could also keep the conflict going indefinitely. Iran’s leadership has figured out how to string Trump along, but they’ve also shot themselves in the foot by failing to accept a pretty good ceasefire deal from Trump a couple months ago. Strategic geniuses they are not.
Trump’s so-called deal to acquire new oil from Venezuela seems like a smokescreen. If it actually goes through, it would take 5 to 15 years to bring oil to market in a nation with a wrecked energy infrastructure moldering beneath a kleptocracy.
Somebody else will be president by then. A Republican might continue with the unusual deal, which involves the Pentagon taking an ownership stake in a joint venture with a Venezuelan energy firm. But a Democratic president could kill the deal—and investigate the whole scheme if there’s any evidence of fraud or bribery.
[Trump is missing his own economic targets]
In a separate development, oil giant Chevron said it plans to increase oil production in Venezuela. This is credible. Chevron is the only big US energy firm doing business in Venezuela, and it’s not couching this as some extension of a Trump policy. It’s the result of competent business decision-making. Still, the increased oil production will be incremental and unlikely to affect prices much, if at all.
Trump, meanwhile, is still trying to jawbone US energy companies into lowering retail prices. It won’t work. The market sets prices in the United States, where energy producers are private sector companies with a duty to maximize profits. We have no national oil company as some other countries do. Thank goodness for that, because it would be a cauldron of graft under Trump.
[What the bond market wants you to know]
Gas and diesel prices are also high because we have limited refining capacity in the United States. Refineries are expensive and hard to build.
Energy companies also love high prices! They’re generally not interested in financing more refining capacity so they can sell their product at lower prices.
As for the bond market, Pinpoint readers should have a pretty good idea what’s going on, because we’ve been covering this in depth. We’ll continue to do so.
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Iran and, Trump and,Russia and,North Korea,Syria and, a host of other's are not strategic genius. Just thought i could use some of your hard work.They are all part of a cauldron of graft.