Kerosene in Sokoto: Conspiracy or just people being rational

I read a couple of news articles on the current scarcity and price hike of kerosene in Sokoto and a couple of tweets about there being some conspiracy with some big names colluding to starve the masses of kerosene which is crucial to their well being. It is always very easy to blame the unknown politicians and connected people for the problem without any kind of analysis.

So exactly is the root of the issue? There has been a crisis in Libya and their capacity to produce Kerosene for their use has diminished. Simply put there are suddenly a lot of people a couple of kilometres away who are willing to pay more for kerosene than we currently do.

What should happen if our society had no price or quantity controls on kerosene? Kerosene sellers should choose to sell their kerosene to  the Libyans since they are willing to pay more, the local price of kerosene should rise, this rise should create more opportunities for kerosene refiners ( or importers) to ramp up production to take advantage of this price hike and the price should fall again but with increased production since we are not only supplying our local market but a part of the Libyan market too.

On the flip side what happens if we have some kind of quantity controls in the name of import licenses and a board who decides how much kerosene is imported ( we don’t even have local refiners but that is one for another day). Kerosene sellers should choose to sell their kerosene to the Libyans since they are willing to pay more, the local price of kerosene should rise and this rise should create more opportunities for kerosene importers to ramp up importation. But they can’t. There is a licensing and kerosene markets board which decides who imports kerosene and how much kerosene they import. The outcome is that we are stuck with a higher price for kerosene and no ramp up in importation and no gains in production (or importation) of kerosene.

The point is you don’t need some conspiracy between politicians or some high powered businessmen skewing the market. You just need restrictions on production, such as a board that issues import licenses, and a shock to the system. The problem is the board that restricts anybody from importing or refining kerosene. Why you would want such a board in the first place is still a mystery to me.

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