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Why Is Fuel So Expensive


Fuel. It's what actually moves the world. From power plants and giant ships to trucks, buses, cars and motorcycles, without fuel almost everything that moves would become a lawn ornament overnight.


So if it's the thing that keeps the world moving, why is fuel so expensive? And why does the price change every single day?


Put simply, a lot of the reason for fuel being so expensive throughout Australia is either political or capitalistic. And, while current fuel prices are extreme, it's not the first time that we (or the rest or the world) have seen this.

The price of fuel in Australia is (meant to be) market determined, meaning that prices change depending on the amount and cost of supply and the demand of the people that use it.


You might also recognise this system from every other business model in a modern capitalist society and, for the most part, it is quite good. When functioning, it allows businesses to set a price for a product while allowing for enough competition that prices remain reasonable.


For example, if Sally sells a carnival themed fairy floss cake for 12 Dabloons while Trent sells a strawberry cream cake for 10 Dabloons, you would probably purchase Trent's 10 Dabloon cake.

Because of Trent's low price, Sally eventually lowers their cakes price to 11 Dabloons to continue competing, which keeps most of her customers happy.


Over time, the quality of Trent's cakes fall. Because of their cheap price they can't afford to use real flour and they start making up the difference with crushed styrofoam and hairballs, which makes a lot of people sick. Because of the low quality, more customers return to buy Sally's cakes just to remain healthy.


In an ideal capitalistic world this is the perfect system. There is enough competition for the prices to stay fair and there is freedom to change suppliers if the quality of a product isn't any good.

However, while this system works most of the time, there is a problem. If Trent's cakes are so bad that their business fails and there is no competition, Sally becomes free to charge as much as she wants. Coincidentally after Trent closes, Sally's cakes quickly inflate to 20 Dabloons a piece.


While this system is pretty simple, there's a lot more going on under the surface in the fuel industry, and it's not just tax.


The best way to look at one of the two main problems (we'll cover the other in a couple of paragraphs) is a little history lesson.


Specifically the 1970's gas crisis.


See, throughout the middle of the 20th century (that's the 1900's), their was significant tension between Arabic and Israeli populations. As with most of the great, everlasting conflicts of history, religion and land rights were to blame and boy were they all hot under the collar.


In 1973, this all came to a head as Egyptian and Syrian forces tried to take control of the Isreali held Sinai Peninsula. Rapidly taking over parts of the land and destroying key resources, such as oil pipelines.


As with all wars of the time, both the USSR and the American military complex couldn't help but get their sticky little fingers involved and, with the USSR (the Soviet Union) supplying the Arabic countries of Egypt and Syria, the American's began shipping supplies and weapons to the Israeli's.

Now, as usual, America was too busy thinking about it's next bombing target to realise the consequences of it's actions and forgot that it shouldn't bite the hand that feeds, which leads to our main problem.


Seeing as this was a war of religious dispute and not just a land mass battle, the other Arabic nations (where much of the worlds oil and fuel comes from) began a trade embargo by holding the supply of oil to the US and other nations that supported Israel.


Knowing what we now know about capitalism, this shortage in supply meant that the price of oil skyrocketed, basically tripling overnight and taking the price of fuel with it.

So how does a historical war that lasted 20 days have anything to do with the price of fuel today?


Much like the fuel shortage of the 70's the current Ukraine/Russian war is having a severe effect on the price of oil around the world with some prices increasing by over 40% in the last year, once again dragging the price of fuel along with it.


In addition to all of this political and historical nonsense, there is another big factor, a lack of competition.


While you might think there's a lot of fuel stations in Australia, the reality is that many of them are owned or supplied by what is lovingly referred to as "big oil". Even the independent fuel stations are fairly beholden to them as there is only 2 Australian oil refineries (both in Brisbane).

With a lack of competition and significant political influence, it's no wonder price of fuel has gone wacky over the last few years and there's a fair chance it will stay that way.


Simply put, even disregarding the political factor and lack of competition, the price of fuel will continue to go up for as long as fuel is still necessary to make stuff move and as long as we are willing to pay for it.


For now, the best way to avoid paying the price at the pump is to walk.


 

If you have any questions about this blog post, would like a second opinion from a mechanic or would like to find an honest mechanic in Brisbane, check out Kashy here.


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