Wednesday, 7 November 2007

A few equations

Iraq / Iran / Middle East turmoil + China / Iran / others experiencing civil unrest through oil/petroleum shortages + Declining world production (3% down from peak) = Rising prices in oil

Mexico is currently the US's 3rd largest supplier of oil. It is likely to become an importer of oil within 5 years. Iran and other oil producers are keeping more of the product for themselves thereby reducing the available supply. North Sea and other oil production is in dramatic decline. There is a shortage of equipment used for oil exploration and extraction and no-one is willing to invest in producing more - one has to ask "why?". Do I really need to mention the Iraq war, the tension between the US and Iran, the ongoing problems with Israel and the rest of the Middle East.

Oil prices rising + Biofuels + Australian / US / other droughts = Rising food prices

Biofuels have been touted as a replacement for oil as the supply gets scarce and expensive. Major grain producing areas are being replanted in crops seen as good for biofuels. This is a fundamentally stupid idea as it a) reduces the amount of food crops and b) more importantly, cropping for biofuels will never produce enough to replace any sizeable portion of oil. One would need to plant an area the size of Venuzuela just to cover the 3% decline in production in recent years let alone the projected increase in demand. The Australian drought has had a huge effect on the price of wheat/grains as have droughts in other areas. There are climate induced water shortages forcast for the future which will have a major effect on water intensive farming such as rice.

US housing market + major debt write downs + 2 billion per day borrowings + huge overseas debts + oil prices rising = major US / global recession

There is a move away from US securities and into tangible assets. People holding US dollars are desperate to exchange them for something that will retain value. The US dollar decline has some way to go.

Things just don't look too rosy for the next few years. New Zealand is a long way from the rest of the world and is just as reliant on oil as any other western economy. Things are going to hurt in a big way. Might be time to start looking at a vege garden again. Get broadband and negotiate with your employer to work from home. Reduce debt. Stop spending.