Oil+prices+steady+by+Wei-Wei

Oil prices steady
 * TITLE OF EXTRACT **

http://www.shanghaidaily.com/article/?id=495957&type=Business
 * SOURCE **

March 6, 2012
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March 6, 2012
 * DATE CURRENT EVENT WAS WRITTEN **

Oil prices have been rising steadily due to drops in supply from Iran. Earlier this year, Iran decided to cut off supply to many of its oil investors in Europe that they regarded as "hostile"; according to the law of supply, if you lower supply, then the price goes up. Because of the lowered supply from Iran's cutting off of its oil exports, the prices of oil have been rising steadily, hitting a 9-month high in late February. Investors, people who spend money expecting to get positive feedback from the project they have put money into, are holding back from investing in Iran's oil industry because of fear of military conflict. Iran's supply curve in the international market has shifted inwards significantly because it is no longer exporting oil to its biggest consumers in Europe. In the long run, this may hurt Iran's economy because of very low demand for oil within the country itself, producing a large surplus of oil within the nation but a shortage of oil everywhere else, which is counteracted by the higher prices. The loss of the international oil trade for Iran may also hurt its GDP, since a large part of that comes from exporting oil.
 * EXPLANATION OF THE ECONOMIC THEORY RELATED TO THE ARTICLE **


 * VOCABULARY TERMS AND DEFINITIONS **
 * price: the monetary value of an item
 * **investor:** one who expends money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property
 * supply: the willingness and ability of producers to produce a quantity of a good or service at a given price in a given time period
 * benchmark: a standard or point of reference against which things may be compared or assessed
 * **nominal:** the value of something at current prices (without having accounted for inflation)
 * demand: the willingness and ability of consumers to consume a quantity of a good or service at a given price in a given time period


 * DIAGRAMS **

The first and foremost reason why Iran is cutting off supply in the first place is political, and so the solution would probably lie in politics, not economics. However, some things that the consumer government can do include: consuming oil from other countries (though the prices may still be high since their demand is more price inelastic due to lower supply, so other countries charge them higher prices for importing oil as well), or using the extra money used for buying more expensive oil from other countries to create campaigns encouraging less oil-consuming modes of transport, letting the oil prices within the country go up to lower the quantity demanded. However, a price ceiling may have to be set, otherwise the price of oil may rise and spike out of control.
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