Effects of Battle on Fuel Market Equilibrium

Fuel, oil or in a few countries called gas is undeniable as important commodities and resources for most sectors on the globe especially in transportation, providing energy and companies. Let take a look on gasoline sales. The deal of world olive oil is USD 1, 600 billion in the year 2008. Most countries without this natural source of information will have to pay to be able to understand this learning resource and in the entire year 2000, Saudi Arabia is reported gained about USD 80 billion dollars as export income. This demonstrates the demand of the resource is now high and of course important as energy sources.

Based on International Energy Organization (IEA) survey on 2009, top three importers of petrol are United States of America, Japan and China. Globally, fuel market requirements are increasing each year. According to IEA on Dec 2010 survey, global engine oil product is revised up from 130, 000 (Kb/d) barrels per day to 87. 4 million barrels each day and it is expected 260 000 barrels each day to 88 million barrels per day in 2011. That was an enormous increasing demand!

What does demand means? Demand is determined as total amount of goods required and able to be purchased by consumers at various prices in certain period. Besides that, demand also related to other variable which is amount and price. In measuring demand amount for engine oil and car market, we can predict that other factors also affecting ingestion are remains.

Nowadays, oil productions are dominated by Group of Petroleum Exporting Countries (OPEC) which led by Arab Saudi and others are five of Midsection East makers which produce 75% of global end result. The world engine oil production graph is shows in body 1 (b) according to below

As we know, crude oil performs important role in every sectors of world financial from heavy establishments to agriculture sector. Once battle outbreak in a country especially one of the primary producers of essential oil on the globe, then the impact will be spread out all around the globe. Why? Engine oil prices will triggers increasing in prices and immediately infecting world economics too. For example, Iraq invasion in Kuwait in 1990 has reduced the supply of olive oil as Kuwait contributed 2. 5% of world engine oil development while Iraq added 5%. Therefore, this has cut off petrol supplies for approximately 7. 5%. Thus, we could calculate the percentage of oil creation being cut off from country A!

However, this will certainly reduce the aggregate of olive oil supply and upward pressure on the price level and indirectly creating decline of total outcome. See? The influences are interrelated with one another and thus affect the world current economic climate. According to the laws of demand, it says that whenever prices rises, demand quantity lowers so when price reduces, demand quantity raises. This is shown in amount 2

In the other hand, we can predict the effect on equilibrium variety and prices when there are changes in demand or resource. Equilibrium is the term used in economics field this means an ailment where all variables have reached established position without tendency to improve.

Market equilibrium will maintain as no market forces which impacting demand and offer. Demand and offer are shifting left or even to the right as a reply to changes in determinant factors. In country A case, fuel source disruptions happen and therefore causing price increase and demanding falling decrease. That is scheduled to economics rules states that all factors all similar as the price tag on goods or services increase and the demand will decrease. That is shown in number 3(a) as per below

As the petrol price increase from P1 to P2, number demanded for gasoline will reduce. This connection are referred to Legislation of Demand where when price boosts demand amounts will decreases and when price diminishes, the demand amount will boosts. Therefore, consumers will certainly reduce their demand for vehicles which will result moving source curve to remaining.

According to supply change, when resource decreases and the demand continue to be unchanged, the equilibrium price will increase and at the same time equilibrium amount will reduce. Let's look what happen while Hurricane Katrina blows US in Sept 2005. The purchase price grew up by vendors and using areas such as Arkansas and Kentucky there are shortage of supplies. Shortage of supplies also known as extra demand. Therefore, when the conflict broke out in country A, then we can forecast that the same circumstance will happen and the problem might be most severe. This will ends in go up in the equilibrium price of gas. The demand of oil is inelastic even as we couldn't replace or replace oil as energy sources. Inelastic of demand here means that the price change ratio is bigger than percentage of amount change. Therefore, price change will give more significant result.

Once the fuel or petrol damaged due to conflict in country A, car market also will influence because they are categorised as complementary goods. Complementary good means that goods which may be consumed mutually to get satisfaction. Therefore, the effects of conflict on car market are reviewed as per below chapter.

Effects of warfare on car market equilibrium

What is the relationship between essential oil and car? Actually, we can say that if there is no engine oil, major problems will be confronted by transportation industries such as lorry, tanks, general public vehicles, market sectors and also our day to day transportation. In the entire year 2009, Malaysia faced scarcity of diesel supply and what's the effect? There are lots of vehicles that used diesel stocked as a result of this. A similar phenomena are predicted to be going on when country A involved in battle. In wider view, there are about eight millions of vehicles worldwide which used energy in the year 2000 which number is greatly increased every year!

So what are the impacts if the energy price increased? Fuel consumers may choose to drive less, using alternative travelling such as commuter, looking for petrol resource substitution plus they might choose electric centered machines such as cross types car. Therefore, there are close romance between petrol price and car market as energy and car are complementary on each other. By the way, what will happen if the price tag on petrol increasing whiles the price tag on car increase too caused by tax? We could imagine that there is certainly lot of vehicles with various engine unit electric power offered with low prices!

As the petrol price is higher need to be paid by consumers, the expense of petrol guzzling vehicle such as BMW and Mercedes Benz will increased. Thus, the demand of luxury cars will decline. Alternatively, consumers in the market will look for cost keeping vehicles as solution. They might change to lower electric power vehicles in cubic centimeter (cc) such as PERODUA cars on the market and etc. as solution if the warfare happens for short-term.

This has been demonstrated by a study which includes been done by economist at Imperial College or university, London suggested that consumers will tends to look for more efficient energy autos, selecting and prioritize public transport for vacations and lessen their travel distances. As a result, you will see tons of luxury car or truck offered in the market and demand curve will change to kept as shown in amount 5.

In the other hands, exactly what will happen if the warfare continues for long term? In this case, we can believe that production of new automobiles will be reduced or being visit all until the situation recovered and thus, demand curve will decrease. This impact towards demand curve and offer curve is illustrated in figure 6:

Tax imposition effects of the energy market

Tax is applied by administration who rules in a country towards retailers for each unit of goods for sale. Therefore, we as consumer needed to pay higher cost to get those items we required. As an example, we could paying additional 1% which total out 6% of federal duty for ASTRO services since Feb 2011.

Tax which imposed by federal means increase cost for sellers. Thus, the duty will switch the source curve the left as in shape 7. From the figure, the purchase price paid by consumers and price received by sellers are shown as the various at duty value of t. The amount of tax which collected by federal is on area P1 P2 BC, while amount borne by consumer are on P0 P2 BE and the seller duty is on area P1 P0 EC. Generally in most countries, the execution on taxes fuels is supposed for travelling sector which is work as one of income source.

As the demand of car is stretchy, it means that demand is giving an answer to price change. In cases like this, the company or designer must borne or absorb the taxes. When demand is stretchy, the result of tax applied is raising the purchase price as stated in amount 8. However, equilibrium variety will decrease in this example.

At conflict situation, demand for gas will drop and demand for substitutes increase. Among substitution alternatives at the moment is using alternative electric vehicles and focusing on public travelling such as train.

In 2008, Malaysia is ranked at 26th place as world engine oil providers with 753, 700 billion barrels each day (Malaysia is also one of OPEC member). The number of creation is small if in comparison to Arab Saudi which produces 10, 250, 000 billion barrels each day. Due to war impact even though we still have the resources, the gas can be used with most effective way as Malaysia just began to learn, execute and use other energy solution such as coal in electric place.

Who will endure the taxes imposed on petrol?

Taxes contain immediate and indirect taxes. Then where does indeed tax income goes to? Those earnings which collected by way of a authorities were used for development of country, open public works, education, enforcement of legislations, health care and etc. Big issue arising on the taxes imposed by federal government is who will bear the cost? Actually when the demand is inelastic, the maker or seller has the capacity to pass most or all of indirect taxes to consumer by bringing up the marketplace price of car. What's mean by elasticity? Elasticity is defined as sensitivity dimension of a particular variable towards one of its determinant such as price. Therefore when demand of car selling price is elastic, the designer cannot simply pass the tax to the buyer but they have to bear majority of the tax independently. Therefore, the duty borne by consumer and distributor is shown in figure 9 as below

Usually, suppliers will hand over the duty which borne by them in whatever goods or services to consumer. The various is if the amount is small or big. Price elasticity of demand procedures response of number demanded by consumer of a specific good towards change in the price of the good.

What will indirect tax mean from figure 9 as above? Indirect duty is the tax which imposed by federal to suppliers. Samples for these fees are responsibilities on alcohol, cigarette smoking and fuel. For certain reasons, federal government levied tax as a strategy to improve environment. Quite simply, tax is complete opposite of subsidies which given by government.

Logically, consumers need to pay the tax for fuel as it is necessary daily. Whether we move to a destination to some other by our very own car, taxi, buses, by airfare or by sea, it all used fuel as energy. As country A still dealing with war, it means that world equipment for fuel will take times to gain stable again. In countries like Japan, China and Denmark, transformation has begun to build up electric vehicles. In Japan, their cab has used completely electric operational cab in Tokyo. Malaysia which also afflicted by high fuel costs should learn and start to develop electric vehicles too and should concentrate on change.

As we realize, the increasing price of energy will directly impact the other daily goods such as dairy, sugar, meat and etc. to go up too. Thus, consumers have to endure the effects in the other side. Therefore, it is unfair all burdens of taxes being bonded by consumers.


As fuel needs are increasing all around the globe, alternate energy substitution of gas are highly recommended. Matching to Bob Lutz from Standard Motors, when the price of oil increasing and stay, they have unwanted effects to current economic climate as oil is utilized in the production of practically in everything, including material, aluminum, plastics, plastic, fabrics, travelling, and food (Daniel Gross, 2008). Consumers may well not hold the high prices for longer period of time.

Implementation of duty must be review from time to time and should be studied on the effects to consumer, market and economy. Too high taxes will load consumers and undoubtedly the price tag on goods will grow too. Therefore, demand of goods will lower!

In order to apply the taxes, government in country A must consider many aspects before the tax has been implemented. This task actually gives impact for long run. Why? We've seen the result of high gasoline price towards car market. Nowadays, car is recognized as must have or needed at least one unit in a family group or children. However, a lot of car offered in the market is also beneficial to consumers even as can choose the kind of car we as with the technical specs we like.

That was for short term effect. What will happen if the key producer of energy continuously involved with turmoil or the crisis required longer period to be peaceful and solve? The result will be worsening so that as could be as what experienced happen in 1970's where gasoline supplies in West countries for the reason that season were in critical situation.

Political stabilities also play important roles in influencing gasoline price especially in Midsection East countries. We know the actual fact that Middle East countries are abundant with oil resources. Latest problems in Libya has almost take off about 300, 000 barrels of fuel production. Corresponding to Coal and oil Journal (OGJ), Libya own total proven oil reserves of 46. 4 billion barrels as January 2011 which is the most significant in Africa. Thus, conflict situation or this kind of turmoil has put fuel supplies vulnerable. Traders and research is watching directly on strikes especially in countries such as Iran as constant petrol price spikes might lead to inflation and infecting global economic growth. Latest reports, Oil companies reported has shut off their flower as the country is still in chaos. What's become worsening is the other country which is also producing fuel, Oman also require problems. That's frightened as the risk of oil production surely will minimize.

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