The article discusses the recent rise in oil prices due to the US and UK launching strikes in

Yemen over recent attacks by Houthi rebels on ships in the Red Sea. The article highlights
that Brent crude hit $80 per barrel for the first time this year as the Iran-backed rebels vowed
to retaliate against military action by Western powers. The UK government is concerned that
ongoing attacks on shipping in the Red Sea could weigh on the UK economy, where growth
remains fragile. Higher energy prices risk stoking inflation just as it has begun to slow.
Meanwhile, the cost of shipping containers on vessels has jumped, meaning that companies
could choose to pass on this expense to consumers. The UK Treasury has modelled outcomes
including crude oil prices rising by more than $10 a barrel and a 25% increase in natural gas.

In this commentary, I will discuss the concept of negative externalities and how it relates to
the recent rise in oil prices. Negative externalities are costs that are imposed on third parties as
a result of an economic transaction between two parties seen the case of oil prices, the
production and consumption of oil can lead to negative externalities such as pollution and
climate change. These negative externalities are not reflected in the price of oil, which means
that the true cost of oil is higher than the market price.

The recent rise in oil prices due to the strikes in Yemen could be seen as an example of
negative externalities. The strikes were carried out by the US and UK in response to recent
attacks by Houthi rebels on ships in the Red Sea. While the strikes were intended to protect
shipping in the region, they have also led to a rise in oil prices. This rise in oil prices could
have negative externalities for the global economy, especially in countries that are heavily
dependent on oil imports. The increase in oil prices could lead to higher inflation, which could
reduce consumer spending and slow down economic growth. The rise in oil prices could also
lead to higher transportation costs, which could increase the cost of goods and services.

The concept of elasticity is also relevant to the recent rise in oil prices. Elasticity refers to the
responsiveness of demand or supply to changes in price or income. In the case of oil prices,
the elasticity of demand and supply can have a significant impact on the market price of oil. If
the demand for oil is inelastic, then a rise in oil prices will lead to a relatively small decrease
in the quantity demanded. On the other hand, if the demand for oil is elastic, then a rise in oil
prices will lead to a relatively large decrease in the quantity demanded. Similarly, if the
supply of oil is inelastic, then a rise in oil prices will lead to a relatively small increase in the
quantity supplied. If the supply of oil is elastic, then a rise in oil prices will lead to a relatively
large increase in the quantity supplied.
The elasticity of demand and supply for oil is influenced by a number of factors. For example,
the availability of substitutes for oil can affect the elasticity of demand for oil. If there are few
substitutes for oil, then the demand for oil is likely to be inelastic. Similarly, the elasticity of
supply for oil is influenced by the availability of alternative sources of oil. If there are few
alternative sources of oil, then the supply of oil is likely to be inelastic. In the case of the
recent rise in oil prices due to the strikes in Yemen, the elasticity of demand and supply for oil
is likely to be influenced by a number of factors. For example, the availability of substitutes
for oil could affect the elasticity of demand for oil. If there are few substitutes for oil, then the
demand for oil is likely to be inelastic, which means that a rise in oil prices will lead to a
relatively small decrease in the quantity demanded. Similarly, the elasticity of supply for oil
could be influenced by the availability of alternative sources of oil. If there are few alternative
sources of oil, then the supply of oil is likely to be inelastic, which means that a rise in oil
prices will lead to a relatively small increase in the quantity supplied.

In conclusion, the recent rise in oil prices due to the strikes in Yemen could have negative
externalities for the global economy, especially in countries that are heavily dependent on oil
imports. The increase in oil prices could lead to higher inflation, which could reduce
consumer spending and slow down economic growth. The rise in oil prices could also lead to
higher transportation costs, which could increase the cost of goods and services.