Thursday, 28 June 2007

the wrong sort of oil


Iran has just imposed petrol rationing, which has led to riots in one of the world's largest oil-producing nations. There's a Peak Oil story behind this somewhere. Although Iran produces enormous qualtities of oil it does not refine it so it exports crude and imports petrol. Anyone familiar with Peak Oil is aware that new oil refineries are as rare as hen's teeth, and the reason is obvious. It's not economic to build new capacity for a resource that is rapidly depleting. There are better ways of spending money! The oil-producers realise that shortages in the market will simply increase the price they get - why waste billions building refineries that will never recoup their costs? Keep supply tight and the price will rise. The demand for petrol is very inelastic like most 'distress' purchases, consumers will find the extra - even if it cuts other spending in the wider economy.

Meanwhile Iran suffers severe unrest because it's not prepared to let price determine demand. It could be argued that rationing is actually fairer, even if the Iranian people think otherwise! Ironically it is perhaps the Iranians who are the first major victims of Peak Oil.

Expect rationing in the UK within 3 to 5 years.
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