Effect of World Events on Oil Prices

The prices of oil are very inconsistent, up now, down the next day, which is something that has been happening for a long time now. There is no price consistency when it comes to oil. Throughout history, you can almost always link price fluctuations to various events that cause those changes. After WW2, prices reached $3 per barrel by 1960, which reelected moderate stability, but subsequent events have had a long lasting effect on oil prices.

The formation of the Organization of Petroleum Exporting Counties (OPEC) in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela brought in a new regime in oil management. The organization unified the oil producing countries, allowing them to coordinate the petroleum policies of those countries and allow for stable prices to be introduced. Other counters like Qatar, Libya, Indonesia, the United Arab Emirates, and Nigeria joined OPEC, increasing its say on global petroleum issues, giving them power to control oil prices and thus power shifting from the U.S. to OPEC, where oil was concerned. Syria and Egypt attacked Israel in 1973, and with America and other countries, especially in the West supporting Israel, OPEC, and especially Arab exporting countries imposed an embargo which threatened to create a global oil shortage (Greenley, 2019).

The war and the embargo on oil caused oil to become un-affordable in many countries and America changed its oil policy to become self-sufficient in oil. Because of the price increase in oil in 1973-74, the U.S. imposed price controls on oil produced domestically, where American consumers paid 50% more for imported oil than they did domestic oil. Producers of oil in the US thus received less than the then world market price. The price controlled the recession that was taking place, but it hampered oil exploration in the U.S., slowing the U.S’s pursuit of oil self-sufficiency (Greenley, 2019). 

The Gulf war of 1990 was launched by Saddam Hussein when he invaded Kuwait with his Iraq forces. There was low oil production, thus a spike in the oil process erupted. After the Gulf war, crude oil prices started steadily declining to reach their lowest levels since the seventies. The American economy started picking up in 1994, and Asia Pacific started experiencing an economic boom, which saw oil consumption increase exponentially and American oil exports increased, as Russian production declined. The September 11 attacks caused crude oil prices to plummet, and OPEC cut its quota to 1.5 million barrels per day. Non OPEC oil producers also cut their quotas. Non OPEC countries, however, picked up production, and prices stabilized, and U.S. reserves reached a 20 year low as prices increased (Greenley, 2019).

History has shown that the US and other countries are involved in a predictable cycle where oil prices are concerned, affected by world events and America aligning its foreign policy with what would best benefit them. There is a long-standing relationship with Saudi Arabia, which has done and continues to do atrocious things, but because of a mutual benefit arrangement which includes the sale of oil to the U.S., the U.S. either says nothing when the international community is castigating Saudi Arabia, or openly stands with them when they are threatened.

References

Greenley L.H. (2019). The World Oil Market and U.S. Policy: Background and Select Issues for

Congress, Congressional Research Service https://crsreports.congress.gov R45493