The factoid thrown around is that roughly 20% of the world’s oil supply travels through the Strait of Hormuz. Since it closed, my local gas prices in one area of the US midwest have gone from $2.60 to now $4.10 presumably as reserves have been used up.

I could understand a 20~30% increase in price to correlate with the reduction in supply, but what are the economic factors that lead to what feels like such a disproportionate increase?

  • Lumidaub@feddit.orgEnglish
    162·
    1 day ago

    There’s no necessary correlation between actual decrease in scarcity supply and increase in demand because of human psychology. Contrary to what economic theory would have you believe, market participants (consumers/buyers, supplier/sellers) don’t (always) behave rationally. When people hear there’s going to be a shortage of something, they panic and rapidly increase demand which rapidly raises prices.

    Alternatively, the oil industry knows that it is basically untouchable as long as we’re dependent on oil and can set prices pretty much however they like. “There’s a war” is a popular excuse for increases.

    Edit: decrease in supply, of course.