I doubt it would be by a significant amount. The ratchet effect (spelled it wrong last time) is one of the few near-definites in macroeconomics. Companies will keep charging a higher price for as long as possible, and there's no incentive to get into price wars in the American oil industry, since the government mandates a MINIMUM selling price. To get into a price war would merely end up cutting profit margins. Thus, it's not wise to start one, because it will merely end with everyone making less money.Durran Korr wrote:In the short run, perhaps; in the long run, however, the prices will drop.The Dark wrote:This I can answer. Ratchet affect. During the war, the oil companies will raise prices on refined oil, since large amounts are being consumed by the military, and the price for crude will go up as demand goes up (it's already happening now, and it's a simple examination of the supply/demand curve). Once the Iraqi oil is available and prices to the oil companies decrease, they'll maintain most if not all of the price increase, pocketing the difference as pure profit. They've done it before; they'll do it again.
Looking at the cost of oil in California, it's steadily increased ever since the 1970s. In 1973, it shot up because OPEC ceased selling us oil, with the average gallon of gas going from $1.2897 (2003 dollars) to $1.6201. When they began selling again in 1974, the prices went from $1.6201 that year to $1.6471. Even though the oil supply increased, price remained roughly the same, an example of the ratchet effect. I will admit it did decline when OPEC cut their prices in 1983, and has remained at near the same point since then (with fluctuations back and forth). It decreased during the recession of the early-mid 80s, when people were hard-pressed to afford gas, then rose as incomes did in the late 90s. In fact, gasoline right now is at its most expensive since the Iranian hostage crisis, and is more expensive (adjusted for inflation) than when OPEC cut supplies. Oil companies have shown a tendency to charge whatever will maximize their profit, so while prices may return to current levels after a war (roughly $2.00 per gallon in approximately two dozen cities nation-wide, slightly less most other places), they will most likely not decrease below that even if the price for crude oil drops below what it is now.
if you only knew.
