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U.S. Energy Pipeline stalls fuel supplies as outage persist


The United States largest fuel pipeline has entered its fifth day of downtime as the operation was shut down by hackers, Reuters reported.


BBC reports that the hackers meant to do “no harm” to the nation's largest supplier of fuel and energy.


The pipeline was hit by a “ransomware attack” earlier this week, causing 45% of the east coast supply of diesel, petrol and jet fuel to be stalled.


With the capacity of pumping 2.5 million barrels a day, the ransomware attack has choked off nearly half of the coast's supply, a significant impact on the aggregate supply of these goods within the region.


The massive hit to the region has caused the national gasoline price to increase by 6 cents to $2.96 a gallon, the highest since May 2018, these prices may increase further if the situation continues.


With over 17 states being affected by the shutdown, the situation is becoming more and more negative as consumers as well as businesses will have to pay the costs of increased fuel prices.


Due to fuel and petrol being price inelastic, heavily weighted goods, the impact which this shortage will have if not fixed on consumers may be immeasurable as individuals will be essentially forced to pay these higher prices out of their own pocket due to there being no other alternatives.


Additionally, this will affect businesses transportation and logistics costs as the majority of firms rely heavily on petrol and diesel.


Because of this, the operating costs of many firms will increase, leading to a reduction in aggregate supply resulting in cost-push inflation as prices rise so that businesses can continue to make a profit by rationing the market.


Additionally, the rising fuel prices have caused fears among consumers as some households act to buy as much petrol as possible resulting in lines being formed at petrol stations, reports Reuters.


This will result in demand-pull inflation as the demand for petrol increases as consumers act now to avoid the future possibility of a petrol shortage.


This will have further negative consequences on consumers within the 17 state region as they will be forced to pay higher prices when it comes to buying normal, everyday products.


This may affect the most vulnerable individuals within society the most, especially the ones on limited or fixed incomes as their buying power decreases due to the rising inflation rate.


This will result in these individuals, who have been hit hard by the pandemic, maybe switch from normal to inferior goods, decreasing their satisfaction and health as they eat unhealthier meals with more preservative contents.


This situation could become even direr, especially if these individuals were forced to cut back on purchasing goods altogether as this would decrease public health significantly as individuals would be forced to juggle their income to make ends meet.


However, the situation will likely not get to this point as the U.S. is working against the clock to restore the pipeline later this week, once this happens, all should return back to normal.


Fuel and oil prices typically fluctuate, for this reason, once the pipeline is up and running again the costs of producers in the 17 states affected by the shortage will likely normalise once again.


So, once the pipeline will begin to deliver its capacity of 2.5 million barrels to American consumers and businesses alike, thus increasing the aggregate supply and decreasing the price of fuel, in other words, it will likely result in deflation in the price of fuel and oil.


This means that American firms will have their operating costs return back to normal levels, thus meaning they will be able to supply products at a regular capacity.


Therefore, because of this, the price of these products will likely fall, undoing the harmful effects associated with rising oil prices as the buying power of American consumers returns allowing them to enjoy an equitable standard of living.

 

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Written by Hubert Kucharski

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