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Rising Gasoline Prices

By Joe McManus

In these times of war threats and terrorism, it is becoming extremely difficult for United States diplomats to maintain friendly relationships with oil rich countries. As a result, the U. S. economy may be faced with a possible oil shortage and continuous rising gasoline prices. As stated in the article “All About the Oil”, Time Magazine “Iraqi exiles flew into Washington, D. C. in late January, 00 for a two-day meeting with U. S. Diplomats. The Iraqis’ � engineers and economists invited by U. S. officials and intimately familiar with their country’s oil industry � spoke in English, not Arabic, for the benefit of the American observers”. The men insisted on keeping their identities secret to avoid retaliation from Baghdad. However, officials quickly figured out what the men’s purpose was - to prepare for a struggle over Iraq’s oil riches as soon as U. S. forces try to drive Saddam Hussein from power.

In one particular meeting held between the United States and Iraqi diplomats to discuss the oil situation, Fadhil Chalabi, a former Secretary General of the Organization of Petroleum Exporting Countries (OPEC) and a member of the Iraqi exile group states, “It could take five years or more before Iraq can boost its output above levels achieved more than two decades ago”.

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Iraq is at the top of many U. S. conversation lists as it is one of our largest resources of oil. Iraq’s proven oil reserves are estimated at 11 billion bbl., which is nearly five times larger than those of the United States and second only to Saudi Arabia’s 6 billion. If the United States does declare war on Iraq, our country’s economists will be faced with having to deal with less of one of our most needed resources. The rising costs, however, aren’t likely to stop oil companies from rushing to Iraq on the heels of the U. S. Army, but they will need to be patient.

How high can oil prices go and how long can U. S. gasoline suppliers continue to charge the rising prices? It will depend on how long the fighting will last if we do decide to fight, and whether or not there will be a major sabotage to Iraq’s oil fields. Iraq’s oil production could shut down completely for months.

What will this all mean to U. S. consumers of gasoline? American businesses will suffer, as rising fuel prices will increase their shipping costs, in turn creating a price increase in most other consumer goods. Some consumers will choose to shop around and go out of their way to purchase gas at cheaper prices. Others will be forced to carpool, walk, or buy smaller more economical vehicles. Of course, there will always be those people who will continue to pay the exuberant prices in order to avoid the inconvenience.

The response of consumers to a change in price is measured by the price elasticity of demand. Taking the law of demand into consideration, we would assume that as prices rise, demand for gasoline would decrease. However, this is not realistic in a society with a large majority of its citizens reliant on gasoline to fuel up their vehicles in order to get them to their destinations. Looking at the situation from this point of view, the demand for gasoline will probably remain inelastic suggesting that consumers will not be very responsive to the price hikes.

Technological advances might be considered in a crisis such as this. Scientists might be motivated to find new ways to develop less expensive types of fuel. They might also want to keep investigating the idea of more fuel-efficient vehicles.

Along with the rising gasoline prices, competition among suppliers will also increase. A war between gasoline stations is already in existence. Some gasoline sellers are offering lower prices in order to draw more business. When comparing these prices however, I have not found a significant enough difference to make me want to drive further. But how far will some people drive to save a few cents? Well it will all depend on the type of person and their spending patterns. Some will go the extra mile while others will not.

Income size will also play a major role in determining consumer behavior when faced with this particular situation of rising gasoline prices. Normally, most high-income people will continue to purchase gasoline without regard to the price. Lower income families on the other hand might have to take other measures. The lower income consumers will be the ones that will go looking for deals and find alternative ways to get around rather than using their own cars. The rising gasoline prices can create quite a dilemma for low-income families who are just barely getting by and living paycheck to paycheck.

How will this situation personally affect me? Being unemployed at the present time and loosing my job after years, it’s going to hurt. I cannot afford to keep spending twenty six to thirty dollars every time I fill my tank. That’s been the average amount I have paid for the past month. I will have to become one of the creative consumers that will start looking for better deals and alternative ways of transportation. I am also thankful that I love to exercise, which makes walking more appealing to me. Hopefully these high gasoline prices will not last too long. Another personal consolation is that I will soon find a decent paying job to help me deal with the rising costs.

Source Documentation

Shiller, Bradley R. The Micro Economy Today. th Edition. New York

Mc-Graw Hill Higher Education, 00

Zagorin, Adam “All About The Oil” Time Magazine 0 February 00.


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