When goods are scarce, how are they distributed? That is: when lots of people want something, but there isn’t enough for everyone, who gets what they want and who doesn’t?
In a market system, prices decide. The people who are willing and able to pay the most get the goods. Price is, in other words, a way of rationing scarce resources. But rather than the sort of rationing that allots a similar portion of goods to everyone, price works like means-testing in reverse. If you are able and willing to pay more, you can have more. If you aren’t, you can’t. And if you can’t pay at all, you can’t have any.
Oil and gas, like all priced goods, are scarce. The supply of oil and gas on the market at any given time is finite and has to be shared out among lots of people and institutions worldwide. This sharing process is regulated by prices, which are set in the same way as other market prices. When supply is constrained, prices rise, because buyers start outbidding one another for limited resources. This process is especially competitive for fuel, because unlike other goods, fuel powers every part of the world economy and everyone everywhere virtually always wants and needs it.
The US-Israeli war on Iran – and the ensuing closure of the Strait of Hormuz, a key energy shipping route – has now catastrophically restricted the supply of oil and gas on global markets. In the parts of Asia first affected by the supply shock, price rises have already led to blackouts, factory shutdowns, and crops rotting in fields due to lack of transport fuel. As a chaotic and extremist US administration heedlessly prolongs the illegal conflict, supply will continue to plummet and prices will continue to rise. And due to the compounded failures of our political class, no systems are yet in place to phase out fossil fuels.
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Here in Ireland, protests against spiralling costs have already forced the Government to intervene. Using a combination of tax cuts and subsidies, the state has now committed over half-a-billion euro to moderate the price of fuel. But because price continues to act as the only rationing mechanism at the point of purchase, the wealthiest consumers can still afford to hoard and waste while the poorest struggle. Meanwhile, subsidised prices mask a worsening supply shock. The Irish Government is not holding back an infinite supply of oil and gas behind a door of prices and taxes. The energy supply available to everyone in the world has been significantly restricted and no amount of tinkering with excise duty can change that fact.
If adjusted prices permit Irish consumers to go on buying up fuel at pre-war rates, then consumers elsewhere will inevitably be left with shortages. This problem is not just a moral one, though it is certainly wrong for wealthy countries to force poorer ones into humanitarian crisis. The reality is that those “poorer countries” produce most of the actual goods that make up the world economy. Look around the room you’re in: many of the products you see were undoubtedly manufactured in the global south. When manufacturing centres start to shut down for lack of fuel, the world economy shuts down with them. If wealthy consumers can’t accept managed restrictions, they will end up with unmanageable ones instead.
The economists Isabella Weber and Gregor Semieniuk recently advocated the establishment of an international “oil buyers’ club“, through which countries in the European Union – and ideally China, India and others – could form a co-ordinated bloc and negotiate lower fuel prices collectively. This sort of co-operative bargaining could potentially bring about actual price changes, rather than just price subsidies. But because supply is so constrained, such a system would first require club members to commit to radical reductions in fuel usage: Weber and Semieniuk suggest participants commit to importing 25 per cent less oil than the pre-war norm.
For context, the OPEC (Organisation of the Petroleum Exporting Countries) embargo in 1973 affected about 7 per cent of the world’s oil supply. In 2020, the year of the most restrictive pandemic lockdowns, when huge swathes of the workforce were furloughed or working remotely, demand for oil in the European Union fell by about 10%. Global oil supply at present is constrained by twice that amount and perhaps more. Renewable energy will help to address some of the shortfall, but nonetheless, a shock of this unprecedented scale will entail structural changes to everyday life. We cannot increase the amount of oil and gas available now. We can only decide how to distribute the supply.
If we can decide collectively how to share out the limited supplies, we can pay collectively too
Since fuel is required for certain fundamental human and economic needs, must the limited supply be sold off to those with the deepest pockets? Why not ration fuel according to need, protecting human welfare and vital economic activity first? The idea of fuel rationing may sound drastic, but in reality, fuel is already rationed. All goods are. At present, they are just rationed according to price. We know alternative methods exist: during the second World War, many scarce commodities were rationed to provide a basic minimum for everyone rather than excess for a few. Rationing does not create scarcity – it just distributes its effects more fairly.
Ireland could certainly stand to benefit from joining an international buyers’ club to negotiate lower prices. In the meantime, though, there is nothing to prevent the State from buying a fair share of fuel supplies directly and rationing them on to the domestic market. That way, we could decide together to prioritise the most vital sectors of our national life and economy, and basic household needs could be secured. The wealthiest buyers would inevitably be forced to cut back on consumption, but the poorest would not be left to go hungry in unheated homes.
Who would pay for all this? The same people paying for fuel now: everyone. Taxpayers and fuel consumers are, after all, not separate groups of people. Virtually everyone pays taxes to the government – some of which is already being spent on energy subsidies – and also pays directly for fuel consumption. Whether it disappears at the till in a petrol station or from a monthly wage slip, the same money can pay for the same energy supplies. The problem is not a lack of money – it is a lack of fuel. If we can decide collectively how to share out the limited supplies, we can pay collectively too.
Crises can force us to reconsider things we take for granted. The closure of the Strait of Hormuz has revealed the terrifying fragility of world fuel systems and the true urgency of the transition to renewable energy. At the same time, it is raising important questions about prices, scarcity and need. Subsidised or not, price systems will always allow the wealthy to hoard resources while others suffer. Rather than demanding adjustments to price, perhaps we should be demanding the outright abolition of the price system for goods essential to human life. We have better ways to provide for ourselves and one another. “From each, according to their ability; to each, according to their need,” as I think the old saying goes.
Sally Rooney is a novelist
