The Oil Drum: Local

I've always thought about the idea of fungibility when you make this point about the exporters. An pure economist would say that as world market prices go higher, less will be consumed internally and countries will shift more of their production to export. The problem is that these are exactly the countries that subsidize their domestic consumption significantly. If they stop doing that, they will have to deal with domestic political/economic problems which for any politician/ruler, elected or not, is not something easily offset by more export income. I'll write longer about this when I can collect my thoughts and find the hard data, but this seems a critical point. In fact, ultimately it means that higher prices will result in less and less fungibility of oil exports over time. I can almost envision an oil/refined product smuggling market as the differential between domestic prices and world prices widens.