Almost 8 months into Trump’s war on Iran, we can see more clearly the consequences of this quagmire. Some have been quite unexpected, like the surprising resilience of the oil market, the emergence of multiple failure points outside of Hormuz (including Bab-al Mandeb, the East-West pipeline, and global refinery capacity), and the increased risk of regionalization for the conflict. These issues have no doubt taken a lot of analysts by surprise.

Others, like Trump’s reluctance to admit he messed up, have been quite expected.

But today I want to talk about something else. I believe this war has either caused or displayed a seismic change in the way global oil markets work. I believe that for the first time since oil is a thing, oil demand is becoming elastic.

And since so far I haven’t seen anyone make this claim, I wanted to put my hypothesis up for debate.

When speaking about demand, economists normally use the terms elastic and inelastic to determine how much consumption will fluctuate when prices go up or down.

Some things, such as food staples, are consumed at quite stable levels. People will keep eating roughly the same regardless of their economic situation (unless very, very dire), and likewise, people who become wealthier are unlikely to eat much more: someone who just got a job paying double is not going to suddenly buy twice as many potatoes. This means that food demand is considered inelastic. Keep in mind this works the other way around: if potatoes suddenly halve in price, it’s unlikely that someone will suddenly start eating double the amount of them.

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