Vital ingredient is missing from oil mix

If the world is a queue of motorists waiting to fill up, the petrol station owner raises his price as he watches the queue lengthen. Those of us at the end of the queue see the litre price on the sign change from 95p to
What the IEA is really doing is making an urgent call for more investment in energy. Claude Mandil, its executive director, has done this before, but few are listening and those who do listen are unable to respond. The multinationals are full of cash and are spending aggressively, drilling at stupendous depths in the Gulf of Mexico and mining oil sands in Canada. Yet the best opportunities to spend are in places where the Western companies are unwelcome, such as Iran and Saudi Arabia, or where it is too dangerous, such as Iraq.

The bigger question is why so many do not listen to the IEA. The answer is that they cannot hear the price signal. Demand for oil is strongest in those places where the price signal is weakest. The agency points to rampaging oil consumption in East Asia and the Middle East – only last month riots broke out in Tehran when Iran’s Government introduced petrol rationing.

Fuel is priced at a fifth of its market value in Iran, energy is similarly underpriced in Saudi Arabia. In Russia, gas prices are a fraction of the world market price. Fuel subsidies are a heavy burden on the Indian Government and in China oil refiners would rather export fuel than sell at official prices.

For most of the world, oil is way too cheap. As long as weak or corrupt governments continue to fiddle with the underlying cost of energy, what hope is there for conservation? What is the incentive to invest in new energy supplies when the oil price is pegged at the level of abundance?

Times