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Chennai Oil Shock

June 1, 2012

Tuesday morning at 7am in Chennai, there was a long queue of cars, tracks, auto rickshaws, and motorcycles at a gas station along the highway. Almost one hundred vehicles were forming the long line, causing a traffic jam on the highway’s main lanes. Considering the slow pace of refueling at the pump, it could take a couple of hours to get the tank filled, if the fuel supply miraculously lasts until our turn. Aware that our car would also run out of gas on our return from the office, we hopelessly passed this station and went to the next. But next five stations were temporary closed with a make-shift signboard saying ‘sorry no petrol.’ I started to think that I may need to take a train and a bus to go back home.

Chennai faced a severe gasoline shortage on the Tuesday, May 29, resulted in the panic buying at the gas stations. I was not unfamiliar with such a situation. This panic reminded me of another similar case a couple years ago in the United States.

Nashville Fuel Panic in 2008

In the summer of 2008, there was a gas shortage in Nashville, due to the speculation that the gasoline refiners on the Gulf of Mexico had been damaged by a hurricane. It was like a self-fulfilling prophecy. It might have been a small group of people talking about a hypothetical situation, something like, “you’d better fill the gas because if all the refiners shut down, we may have an gasoline supply problem.” Then at some point in the message chain, the hypothesis got dropped off, like, “you’d better fill the gas because … we have an gasoline supply problem.” Nashville had been ok with the gasoline supply until the rumor pumped up the demand at the rate that exceeded the normal rate of the supply. The prophecy was fulfilled by itself.

Panicked Crowd vs. System Resilience

We find similar examples of the self-fulfilled prophecy everywhere. When everyone thinks the stock market goes down, it will actually go down (because they sell the stock in a panic, obviously.) The panic will settle down after some time and things will get back to normal. If the system is strong enough, it can hold until this point and will rebound like a resilient rubber band. However, if the system is not strong enough, then it cannot handle the abnormal amount of transactions and will break. The US economy can get back to normal after a panic selling. But a small regional bank could go bankrupt when a rumor of the bankrupcy spreads and all the customers try to withdraw the deposit.

Shall We Join the Party?

If you trust the system’s resilience and you can get hold during the panic mode, your best option is to ignore it. When there is a snow storm forecast in Nashville (where rarely snows and people don’t know how to handle that white substance,) people rush to the grocery store and buy milk and egg, which wwill quickly disappear from the shelf. But the snow in Nashville is not severe enough to paralyze the city’s supply chain for more than a day or two. And of course, a human can live without milk and egg for weeks.

If you have to join the game, either because you actually believe that your bank goes bankrupt or you cannot live without milk and egg for more than 12 hours,  you should be aware that it’s not the truce that determines the course of the event (and your best reaction,) but it’s what the other people think. In a panicky situation, it doesn’t matter if the bank’s finance is sound or if the snow storm hits the city’s supply chain. What matters is if your neighbours will rush to the bank and the store or not.

Today’s Lesson

We found one station off the main road near the office, where was no waiting line at all. Relieved, I handed over the credit card to the atenndant, who then said, ‘no card today, sir.’ Oops, it’s always good to carry some cash in India.

P.S.

I borrowed cash (thanks, Miyata-san!) and managed to pay the gas enough to return home. The fuel shortage in Chennai had eased by the next day.

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