An Analysis of Fuel Smuggling in the Middle East as a Single Multinational Market

Ali Dadpay

Journal of Industry, Competition and Trade, 2020, vol. 20, issue 4, No 2, 643-656

Abstract: Fuel smuggling is a thriving business in the Middle East region where some oil-producing governments subsidize petroleum and fuel products. This multi hundred-million-dollar industry benefits black marketers and terrorist organizations such as the Islamic State of Iraq and Levant, who use smuggling fuel and oil to finance their operations. This article uses a mixed oligopoly framework to study the interactions between governments which influence this market. It finds out that the different approaches to pricing motivate fuel smuggling. While paying subsidies to consumers might reduce the volume of fuel smuggling and an increase in the law enforcement effectiveness will reduce the number of fuel smugglers, neither approach will stop fuel smuggling completely. Governments can stop smuggling only by adopting a strategic approach to pricing, which takes into account the multinational nature of the market.

Keywords: Subsidization; Privatization; Mixed oligopoly; Multinational markets; Fuel pricing (search for similar items in EconPapers)
JEL-codes: L13 L32 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10842-020-00340-6

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