Oil markets are on edge ahead of the weekend, as midterm elections near and fresh U.S. strikes on Iran are predicted
Real-world example for IB, A-Level, AP and IGCSE Economics essays: Supply shocks, Supply, demand and prices, Exchange rates
What happened
Oil prices have risen back to the high reached during the Iran war, and markets expect they could climb further if the U.S. and Israel strike Iran after voters go to the polls.
The economics
A military strike on Iran would threaten oil supply, shifting the supply curve left and raising the price if demand is unchanged — a classic supply shock. Students can draw the leftward supply shift and show how geopolitical risk and expectations move prices before any actual disruption.
Evaluation
The size of the price rise depends on whether a strike actually happens and whether other producers can fill the gap; if conflict is avoided, the risk premium could fall quickly, so short-run volatility need not reflect a long-run trend.
Practice question
Using geopolitical conflict affecting oil supply, analyse how a supply shock raises oil prices and discuss how the effect may differ in the short run and the long run.
Read the article ↗ · Draw the diagram in the Diagram Lab
Where it fits in the syllabus
- Supply shocks: A sudden change in supply, such as energy, food or supply-chain disruption, that moves prices and output.
- Supply, demand and prices: How a change in demand or supply in one market moves its equilibrium price and quantity.
- Exchange rates: The price of one currency in another; appreciation or depreciation changes exports, imports and inflation.
- IB Economics: Demand, Supply and Elasticity, Aggregate Demand and Supply, Exchange Rates and Balance of Payments
- A-Level Economics: Supply and Demand, Aggregate Demand and Supply, International Economics
- AP Macroeconomics: National Income and Price Determination, Open Economy: International Trade and Finance
- AP Microeconomics: Supply, Demand and Market Equilibrium
- IGCSE Economics: Demand and Supply, International Trade and Globalisation