Matthew Yglesias has a piece making the fairly obvious point that geopolitical tensions cause the price of oil to rise. He adds that speculators are right to bid up the price of oil because of that:

In the grand scheme of things, if the Iranian nuclear program really is a dire threat to American security, maybe something as petty as the fate of the economy doesn’t matter. But make no mistake, a war with Iran would have enormous consequences on the global price of oil, and it’s perfectly reasonable for speculators to take to the futures markets to try to bet on it.

How big of an impact on oil prices are we talking about? In January, UC-San Diego energy economist James Hamilton looked at four previous supply disruptions: the 1973 OPEC embargo, the Iranian Revolution of 1978, the 1980 Iran-Iraq War, and the 1990 Persian Gulf War. Hamilton found that at peak “these events took out 4-7 percent of net world productions and were associated with oil price increases of 25-70 percent.”

Iran, in case you were wondering, is currently responsible for 4.9 percent of world oil production.

So that’s big. Of course, an American or Israeli bombing of Iranian nuclear facilities wouldn’t mean that all of Iran’s oil would come off world markets. But then again, it might. This hard-to-assess probability is catnip for speculators. While it’s completely plausible to suggest that speculation is a factor in driving current prices, the speculators here are clearly the symptom, not the cause. This is what happens when there’s underlying uncertainty about whether or not 4.9 percent of global oil production is going to vanish.

All of this is fine. Speculators are a distant early warning system here, and they are telling the policymakers about an impending disaster should war with Iran come to pass.

But just because the speculators happen to be right about the impact of war with Iran on oil prices doesn’t mean that they should be given carte blanche to dominate the oil futures markets. Nor does it mean that speculation is somehow not a problem. The problem isn’t that speculators are running up the price in a faulty way, it’s that they have an inordinate degree of oil futures contracts. The most recent data shows that speculators make up 64% of the market. This is extremely dangerous, and it’s where the market gets out of balance.

Consider the last real spike in oil prices: mid-2008. What geopolitical problem drove the price of oil to $148 a barrel in that case? Iraq was at a lower ebb relative to previous years in terms of violence, there was no Arab Spring yet, and Moammar Gadhafi was still our friend. The world wasn’t a safe place, but there wasn’t some screaming siren that speculators were justified in setting off. They ran up the prices because they profited from it. And everyday customers of gas lost in the exchange.

Speculation can be justified and also an actual problem. I agree with Yglesias that President Obama’s oil speculation task force won’t do anything. Fortunately, it doesn’t have to. The Commodity Futures Trading Commission can set position limits that are far more stringent than the weak speculation rule they already announced. Even that rule is getting challenged in court, and we’ll have to see how that turns out. But the CFTC has authority in this area, and they can balance the market with respect to speculators in a way that’s healthy. Right now, a volatile market based almost entirely on speculation serves no interest.

The Administration can work to lower oil prices by tamping down on the overheated Iran rhetoric. Fortunately, the President did that the other day. But they can also work to rebalance the commodities markets so they’re not controlled by Wall Street speculation. Both things can be true. It’s not an either-or situation; it’s both-and.