Article Review #2

Posted: October 5, 2010 in Social Studies 10

The article I chose to review was about a large increase in the amount of oil in Iraq’s oil reserves.  This article caught my eye as we had been working on a project that dealt with oil, and I felt that it would be a good way to relate the real world to class.  Connecting class to the real world is something that I feel is extremely important in order to actually understand what is going on.  I find it easier to understand economic concepts if put into a real-world situations than if it’s just written on paper.  The concepts that this article helps clarify are supply & demand and surplus & scarcity.

The increase in the amount of oil in Iraq’s reserves generate huge incentives for nations to form economic relations with the key OPEC member.  Incentives are the motivation that leads to buying products in the markets.  Since oil is a product that has inelastic demand, almost everyone in every developed country requires it, and they’ll need to get it from somewhere.  As Iraq has recently gained $2.27 trillion worth of oil, it will be an prime market for the oil companies to buy their oil from.  It will also give Iraq incentives to seek out relations with other nations.  As Iraq is still recovering from a devastating war they have a very flimsy economy, however, getting huge supplies of oil will generate massive revenue for the oil exporter.  The profits could be used towards building a more sustainable economy.  With the supply of oil as an incentive, Iraq will hopefully forge strong economic relations worldwide.

The fact that the Iraqi oil reserves have received this massive boost in quantity gives rise to a circumstance where a surplus could be taken into consideration.  The result of a surplus would be a lowering of the prices, in order to attempt to sell the product.  The fact that the product in consideration is oil, a surplus is very unlikely to occur, unless humans move on to less oil related forms of energy.  What can occur now though is a scarcity.  With oil a scarcity is often times discussed and is one of the reasons why its price has spiked so high in recent years.  Scarcity can deal directly with supply and demand in this situation, because the supply is lowered while the demand remains the same.  As a result, the price inflates.  Surplus and scarcity are two driving factors in the price of oil in the market today.

The reason why these economic concepts were chosen was simple, I felt that they were the factors most commonly attributed to oil in the world economy today.  Incentives and surplus are words that I hear on CNN and BBC News every day when it comes to the economy, and I could see a real connection to the article.  Surplus and scarcity were topics that I felt confident about in my understanding.  I could also see a very obvious way in which they would affect oil economically.

To read the original article, click here

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