Gas Prices Understanding the Link Term Paper

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In only six of the 16 months studied did petroleum prices move in the same direction as troop casualties, a month after those casualties occurred (See Table 1 and Graph 1). When we consider the three months with the largest increases (145.2% in April 2006; 60% in December 2006; and 51.2% in August 2006), only once (May 2006) did the following month post increased refined petroleum prices. If we consider all months with at least 20% movement in troop casualties, in only four of the 10 months did refined petroleum prices move in the same direction the following month. Isolating months with at least 30% movement in troop casualties shows that in only one case of five did refined petroleum prices increase the following month. In short, the link gets worse as the percentage increase or decrease in casualties moves significantly.

By analyzing a two-month lag, we are left with 15 data points. In only six of the 15 months did refined petroleum prices move, two months later, in the same direction as troop casualty figures (See Table 1 and Graph 1). The three months with the largest increases in troop casualties (145.2% in April 2006; 60% in December 2006; and 51.2% in August 2006), were only followed two months later by an increase in refined petroleum prices once -- in February 2007. Of the nine months analyzed where at least a 20% change in troop deaths occurred, only four times was there similar movement in refined petroleum prices two months later. Interesting enough, in three of the five months where at least a 30% change in troop deaths occurred, refined petroleum prices moved in the same direction two months later. While this allows for an argument that refined petroleum prices, with a two-month lag, can be influenced by movements in troop deaths that exceed a certain trigger point, the argument is far from convincing. After all, the overall correlation between troop deaths and refined petroleum prices after a two-month lag is weak, and at the 20% trigger mark, refined petroleum prices moved in sync less than half the time.

Conclusion

The link between American troop deaths in Iraq and refined petroleum prices is weak at best, and arguably non-existent, even when we consider time lags. There is some evidence that, without time lags, there can be some relationship between troop deaths and refined petroleum prices during the months in which those deaths occurred.

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The majority of the time when there was a 20% movement in troop deaths, compared to the previous month, refined petroleum prices moved in the same direction. This relationship does not hold up once we cross the 30% barrier, but the sample size is smaller and arguably less relevant.

In fact, a stronger argument can be made that troop deaths have a reverse impact on refined petroleum prices. In most of the cases studied -- whether we are considering time lags or not -- refined petroleum prices moved in the opposite direction as troop deaths. This may seem counter-intuitive, but there could be something to this line of inquiry. For example, troop deaths may result from large missions meant to control insurgent activity, and perhaps this engenders a notion that the situation in Iraq is being brought under greater control. More study is needed.

More likely than not, there is no real correlation between American troop deaths and refined oil prices. It is impossible to know what oil prices would have been if a certain number of deaths had not occurred. However, there simply does not appear to be a strong reaction in refined oil prices when troop deaths increase or decrease, even when a lag is introduced to give oil markets time to respond. At the very least, we can say troop deaths are not a determinant factor.

Table 1: Changes in Refined Petroleum Prices vs. U.S. Troop Deaths

Refined Petrol. Prices (Cents)

Change

U.S. Troop Deaths

Change

U.S. deaths," 2007 and "U.S. total," 2007)

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