Thursday, September 28, 2006

Where's the oil? 

Mostly in places you don't want to go.

Although oil producers are responding to higher prices, the gains in supply are likely to prove modest because reserves are concentrated in countries where incentives to increase output aren't strong. These are places where the government controls the oil industry or where a lack of economic freedom stifles the private sector.

Two-thirds of the oil is in Saudi Arabia, Iran, Kuwait, the United Arab Emirates and other countries with heavy government direction of the oil industry. Only 15 percent of reserves are in nations with high scores in economic freedom and market-driven oil production�chief among them, the United States and Canada.

And because of that, the cost is rather high, at least according to this guy:
Growth is slower. Inflation and interest rates are higher. I estimate that the tripling of oil prices since 2002 has reduced GDP by 2.4 to 3.2 percent, spread out over a number of years. Most of the losses are behind us now, so the losses through the end of 2007 will likely be about half a percentage point a year.