So when Americans worry about price gouging, we need to consider the alternative. If we artificially limit the price of fuel, demand will stay artificially high, and we will run out. As R-Squared Energy blog puts it:
In times of shortage, price needs to rise to choke off demand. I may like to go visit my Aunt Bettie in the midst of this emergency, but I can put that trip off. However, if you have a dying relative, the price is not going to stop you. But you will be glad that it stopped me, and others whose need was not critical, from draining supplies.The Iranians are going to learn very quickly that in a supply-constrained world, charging less than market price means there's not enough to go around.
2 comments:
But isn't the problem that the supply here is global and the prices are local? Saying that Iran is going to quickly learn about a waning supply if it keeps its prices low doesn't seem to make a lot of sense.
Rather, Iran will just be able to use more of a global resource faster than the rest of us (if price is the consideration)--i.e., their supply and ours is the same, and since price isn't a limitation for them, then they can consume more of it.
So I'm not sure Iran will learn anything from keeping its prices low, other than that they will get a bigger share of the pie.
While the government sets a domestic price, they still have to buy oil on the world market. In other words, the rationing is domestically imposed, probably because the government can't afford to buy enough oil to keep up with domestic demand when prices are artificially low.
Unless Iran comes up with more cash, I doubt they'll be expanding their part of the pie, especially since oil revenue makes up a large portion of their government budget.
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