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1 month ago
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ARTICLE AD BOX
Summary
Was India’s LPG panic worsened by market behaviour in response to its policy on essential commodities? And does relatively inelastic demand for crude oil pose a bigger threat to the global economy than traders and wagers of war have priced in?
Given the distinction that India makes between essential and discretionary spending, the Centre’s use of the Essential Commodities Act to regulate LPG supply was no surprise. Households being prioritized over commercial users was like a policy reflex; restaurant food is seen as an indulgence.
Yet, market psychology doesn’t always comply. The very visibility of LPG-starved eatery closures may have amplified the sense of scarcity that set off a rush for LPG cylinders, worsening the panic.
While price-capped gas ran short, the black market showed price elasticity—with rising rates shrinking demand. Globally, meanwhile, relatively inelastic demand for crude oil poses a huge risk. The greater the inelasticity, the higher its price must rise to shrink usage sufficiently to match overall supply if the Gulf war rages on to spell more than a brief crunch.
Speculative trades were partly why Brent oil went above $100 per barrel last week, but if an extended disruption gets priced in, its price-rise could steepen.
Blame the rigidity of both market and military forces. Peace must be restored right away for the Hormuz clamp to ease. Trying to force this strait open militarily is too risky.
English (US) ·