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By Mark Wadsworth blog
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High oil and gas prices - probably just a spike

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Sure, gas prices are stupid high at the moment; oil is high but coming down (and the government should do some short-term patching up for those on lowest incomes to help them through), but I have faith in things like ‘capitalism’ and ‘free markets’ that this will all sort itself out within a year and we’ll wonder what the fuss was all about.

For a start, the Yanks could stop being so prissy about Venezuela and Iran, for some long-held grudges that date back decades and have no real substance (see also: Cuba). Or the rest of the world could tell the Yanks to go stuff themselves and recommence buying oil from Venezuela and Iran (who are no worse than the Saudis, I’m not picking sides here).

There is global demand for oil and gas of X and a global supply of X, give or take with clearing price $Y. Both supply and demand are inelastic, the slightest change in supply or demand leads to large short term fluctuations in price, but it always reverts to some sort of equilibrium (extraction cost + profit margin). In the short term, Russia is selling less to European countries and more to other countries; but in turn those other countries will be buying less oil and gas from ‘wherever they used to buy it’; so European countries can start buying from ‘wherever’ and we’ll get back to $Y, plus or minus a bit.

Of course, there are short term practicalities to sort out with pipelines and shipping, and on average, supply routes will be longer (hence more expensive) than before, but that’s small change in the grander scheme of things.

As far as electricity goes, we can start using coal again (in the power stations that haven’t been completely wrecked yet), continue/press ahead with nuclear power stations (these options not available to the Germans, who are the idiots who got us into this mess) and there seem to be plenty of new wind farms sprouting up, maybe they’ll work out something clever with wave or tidal power… The more diverse sources you have, the better.

One swallow doth not make a summer, but it’s still nice to see a swallow once in a while.


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