Children, this is called analysis

The Iran problem is a oil market power problem. The solution is a “price attack”

Iran’s oil exports are declining due to “energy subsidies, hostility to foreign investment, and inefficiencies of its state-planned economy underlie Iran’s problem”. That is the reason why Iran is seeking nuclear energy. It is also seeking nuclear weapons to become a regional superpower. The best way to tackle the Iranian regime is not through war or economic sanctions, but, as Roger Stern argues, through enforcing fuel-economy regulations on the automobiles in oil importing countries, including the United States and India. The solution is a “price attack” that breaks the OPEC cartel.

Stern’s analysis and arguments, which follow his earlier analysis of oil market power and the threat to US national security, are brilliant.

There’s something in it for Indian policymakers too: another good reason to dump that pipeline project—Iran does not have enough gas to pump across.

Remarkably, India is proceeding with an agreement for an Iran–Pakistan–India gas pipeline, apparently oblivious to what is common knowledge from the Majlis to the trade press; Irani gas is overcommitted, which will continue to be the case even when new South Pars gas comes on stream (6, 33). It therefore seems open to question whether Iran will continue gas exports should oil exports decline precipitously for lack of reinjection. [PNAS]

9 thoughts on “Children, this is called analysis”

  1. US is moving along the not as efficient ethanol road, with occasional kicking and screaming. I don’t see similar activity in India.

    With an economy growing at 9-10%, and inefficient state control over negotiations on acquiring fields and price controls (disincentive to conserve and improve efficiency due to impact on short term impact on inflation), and low current usage of energy per capita, which is bound to grow multi-fold for decades to come, there is no alternative to India other than OPEC (which is adding members as we speak) oil even if there are large reserves of gas are found in Krishna/Godavari delta and India moves towards a gas- and nuclear-based economy.

  2. Nitin: the price attack is much likelier in India than in the US because of the US’s giant “installed base” (30M petrol/gas vehicles in California alone). But to do that successfully we need cost-effective hybrid transport if not totally electric transport. A blind mandate without cost-effective technology will not work (California zero-emission standards for 2002 rolled back by big auto and big oil). That said, it seems that 2007 might just be the year when battery technology matures enough to start some serious hybrid/electric transport (check this, this, and this). Not to mention the giant success of Toyota Prius worldwide (expected to do 100mpg or 43km/ltr in the 2009 edition using Li ion batteries).

    One way or the other the oil story is playing to its conclusion in 10 years. And these oil boys will soon be up the creek without a paddle.

  3. Libertarian,

    That probably explains why King Abdullah made trips to Beijing and New Delhi last year. They’ll want to keep India and China from transiting out of oil.

  4. Nitin: that’s probably why the saudi fellow made the rounds. But between Tulsi Tanti and startups like Nanosolar and Konarka we should have enough green (non-nuclear) technology to solve India’s 120GW (that’s about how much generating capacity we currently need) problem. Tanti claims wind alone can generate about 45GW in India. Couple cheap green electricity with electric/hybrid vehicles and oil in 2015 looks like coal when oil first arrived.

    Also the Silican Valley VCs are pouring billions into green tech – likely means the problems will be solved in short order.

  5. Another source of electricity is individual homes. Some small biz owners, like vinyards, and individuals supply excess solar generated electricity back to the grid when their usage is low – growing season for farms and most working days for individual homes. Some farms in california are power consumption neutral or negative. But for that to happen tax brakes for expensive solar panels and flexibility and current technolgoy for grid owning companies is in order. In India, the former probably can happen fast but the latter, probably, a big hill to climb over.

  6. Chandra: seems to me that energy independence in India may need a different vertical strategy than the US. Instead of a pervasive grid, which would take an enormous amount of capital, we may be able to use batteries (think back to the LPG “cooking gas” cylinders) in tandem with a distribution mechanism – which I suspect can be set up fairly cost-effectively in India (for short distances). We’ve seen this movie before: we have a pathetic land-line infrastructure, but our cellular coverage is as good as any in the world.

  7. Libertarian, it’s possible I guess. But the currently it is difficult and expensive to store electricity for long periods of time – gas cylinder lasts few weeks but a battery is unlikely to; a cylinder is metal molding with pressure gauge, very low tech, verses rechargeable battery, the highest current tech and is potentially very dangerous. Wire transmission of electricity is much cheaper than packages of electricity even in capital-less India.

    But wireless electricity, if it becomes reality, may be analogous to cell phone example and a potential boon. But again the question is with regards to the source of energy – oil/gas/coal/solar/wind – not the mode of transmission.

    Economist Nov 16,2006:

    Marin Soljacic and his colleagues at the Massachusetts Institute of Technology have devised a solution to this problem. They propose to transmit power using what are known as “non-radiative” fields and to distribute the electromagnetic energy so that it is carried by the magnetic rather than the electric part of the field. Because magnetic fields interact much less strongly than electric fields with most types of matter—including, most importantly, people—the transmission of power would be both more efficient and considerably safer. They reported their work to the industrial physics forum held by the American Institute of Physics in San Francisco this week.

    One of the most promising layouts, according to the researchers, is to have a simple loop of wire connected to the mains and stuck to the ceiling. They showed that the electric field is confined near the ceiling, leaving only the magnetic field to transfer the energy to a smaller receiving loop a few metres away. This could be placed on, say, a laptop or mobile phone.”

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