War and the price of Oil

Readers Question – When a war brakes out in middle east,the price of petrol rises, and the price 0f a used ford falcon falls why?

When a war breaks out in the middle east, there is likely to be disruption to the supply of oil. 50% of our oil comes from the middle east, so if the countries are engaged in war then output is likely to fall and supply shift to the left causing price to rise.

Even if output doesn’t fall, people may push the price of oil higher because they think that it might do. There is also a fear that middle eastern countries may restrict the supply of oil just to annoy Western countries like the US. This happened in the 1970s.

The supply would shift from s2 to s1. The price would rise from P2 to P1

If oil and petrol are more expensive then people will look for alternative forms of transport. For example, rather than buy a car people may continue to buy bus tickets and cycle to work. If the price of oil is cheaper then people will want to buy second hand cars like a Ford falcon. Therefore, there will be less demand for ford falcons and the price will fall.