Tuesday, August 21, 2007

Energy Insecurity

Iran's oil minister was recently releived of his duties. As he left he warned the Iranian president of a looming energy crisis in that country. Tow factors have contributed to this development. First is over consumption combined with low investment in refining and extraction infrastructure. The sanctions against Iran have contributed to the low investments while demographics have only made the consumption problem worse. Iran now has fuel rationing while being OPEC's number two crude oil producer.

This is a good news bad news story. The good news is that this energy crisis in Iran will probably create a reduction in crude/natural gas supply as their infrastructure further deteriorates. This will raise prices and make alternative sources more competitive, hopefully become more widely adopted and can then realize the benefits of scale to reduce the cost. That way if oil prices come back down alternatives will be firmly entrenched and reverting back to oil will be pointless. The second bit of good news is that this may cause a social crisis in Iran and force reform on the country hopefully avoiding another war in the region if a more moderate government comes to power. The bad news is that they may become more radicalized by blaming the sanctions on their declining infrastructure and start a war themselves or create other alliances to circumvent sanctions and negating any effect they were supposed to have. Another Iraq-style conflict may result to secure the resources if they begin to supply others and the stage has been set for that already. Anything is possible.

The irony of the story is that one of the world's largest energy producers has a domestic supply problem because of overconsumption and inefficiency. Hopefully, this will serve as a lesson to everyone about wasting resources and shows how alternatives/renewables are the way to power the future.

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