Oil+jumps+to+9-month+high+after+Iran+cuts+supply+by+Wei-Wei

http://www.shanghaidaily.com/article/?id=494844&type=Business

TITLE OF EXTRACT:
Oil jumps to 9-month high after Iran cuts supply

SOURCE:
Shanghai Daily: Business http://www.shanghaidaily.com/article/?id=494844&type=Business

DATE EXTRACT WAS WRITTEN:
21/02/2012

DATE CURRENT EVENT WAS WRITTEN:
23/02/2012

EXPLANATION OF THE ECONOMIC THEORY RELATED TO THE ARTICLE:
The economic theories behind this article include: supply and demand, relative scarcity, and elasticity. In the title itself, it states that Iran cuts "supply", leading to a "9-month high" in oil prices; this is logical according to the law of supply, since as supply decreases, price increases. Oil is a relatively scarce resource, meaning that it is scarce when comparing the amount supplied and the amount of potential buyers; it is also rapidly becoming more and more scarce simply because resources are running out, meaning that prices may just continue to rise. However, the third concept of elasticity comes into play: oil is an extremely inelastic resource, since it is needed to operate many types of machinery that are now seen as vital to support the economy and quality of living (cars, factories, etc).

VOCABULARY TERMS AND DEFINITIONS:

 * **prices:** the monetary value of an item
 * **exports:** goods or services sent to another country for sale
 * **benchmark:** a standard or point of reference against which things may be compared or assessed
 * **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
 * **market:** where buyers and sellers come together to carry out an economic transation

EVALUATION:
Iran is reportedly cutting supply of oil to "hostile" European nations; in the end, it all comes down to the EU sanctions that the Iranians regarded as unnecessary punishment. While oil's price elasticity of demand is very inelastic, I think that the higher oil prices will continue to rise with the increasing scarcity of oil, forcing people to turn to substitutes. However, I don't think that resorting to cutting off supply is a good way to deal with unfair sanctions on the trade, though it is effective in terms of how people suddenly care much more. Iran's "protest" doesn't seem to affect the larger players in the EU, such as France or the UK, simply because those countries haven't been largely reliant on the oil supply from Iran.