Modern Day Geopolitical Conflicts and Their Effects on Global Oil Prices

February 9, 2012 3:12 pm 0 comments

2009-2011 price chart (left) and Iran's top petroleom importers (right). Photo: Thomson Reuters.

In an election year, the last thing an incumbent President needs when running for re-election is a spike in oil prices.  As The New York Times pointed out a couple of weeks ago, that scenario is most likely being considered inside the White House when deliberating strategies to deter Iran’s pursuit of a nuclear bomb.  The Algemeiner hit the books to research historical spikes in oil due to geo-political crises and risk.  The numbers seen below are not adjusted for inflation.  Here’s what we found.

From 1951-1953, during the Korean War oil prices hovered between $17 to $19 in 2010 dollars. Prices were kept in check with price ceilings by The Office of Price Stabilization, which was modeled after the Office of Price Administration.  The OPA was established in response to America’s involvement in World War II and kept a lid on retail and rent prices in the U.S.

During the Suez crisis from 1956-1957 no noticeable price increase occurred as oil prices remained between $18 to $20 in 2010 dollars. The supplemental production from oil producers around the world helped to make up for the disruption of Middle Eastern oil supplies.

Following the Yom Kippur war, oil prices quadrupled during the six-month period from October 1973 to March 1974. This was because Arab countries imposed an oil embargo on countries that supported Israel during the Yom Kippur war. The net loss of four million barrels per day in oil production represented 7% of global oil production.

From 1974 to 1978, world oil prices remained stable. However, the nominal oil price more than doubled from $14 in 1978 to $35 per barrel in 1981 due to two major reasons. First, Iran’s oil production fluctuated wildly between 1978 to 1979 because of the Iranian revolution. Secondly, the Iran-Iraq war started in 1980 and both Iran and Iraq were producing “6.5 million barrels per day less than the previous year.” Global oil production was 10% lower in 1980 than in 1979. Both Iraqi and Iranian oil production have never reached their 1978 peak production levels.

During this time, from 1973-1981, the United States imposed price controls on domestic oil production.  This led to higher prices on imported oil left American citizens with a lower price on crude than the rest of the world.  The price controls were lifted in the early 80’s.

From 1981 to 1986, world oil prices declined from $80 to the $20-$30 range in 2010 dollars. This was a byproduct of declining global oil demand, increasing non-OPEC oil production and Saudi Arabia increasing its oil production from 2 million to 5 million barrels per day in 1986.

There was a brief spike in oil prices during the 1990-1991 Gulf War. However, after the Gulf War, oil prices continued a decline, reaching a low of $10-$15 (in 2010 dollars) in 1999 due to the Asian financial crisis.

Oil prices increased over the next two years but dropped following the September 11 attacks. From 2003 to 2008, oil prices began to increase sharply, partially due to the 2003 Iraq war. Other factors such as a weaker US dollar and Asian economic growth contributed to the oil price increase. Spare production capacity also declined from 6 million barrels per day in 2002 to 1 million barrels per day in 2005.

After reaching an all-time high of $145 in July 2008, oil prices collapsed to fall below $40 later in the year due to the global recession.

Prices spiked sharply in 2010 hitting $114 a barrel, partly due to the Libyan conflict, as well as a minor global recovery from 2008. Libya’s pre-war exports of “1.5 million barrels of oil a day, or 2 percent of global demand” were halted as rebel forces seized production fields. Prices started to decline again after some of Libya’s oil production was restored although in recent months oil prices have risen due to tensions with Iran.

In a potential future war against Iran, oil prices will almost certainly spike; possibly even reaching the $200 per barrel level predicted by some commentators. Following a potential war, the length of time it takes for the oil price to decrease and how much it declines depends on a number of factors. These factors include global spare production capacity, global oil inventory levels and the level of disruption to oil tankers moving through international waters.  The United States imports a quarter of its oil from Arab OPEC countries and it is self-sufficient in natural gas. However, global spare production capacity has declined due to supply disruptions in Libya, Yemen and Syria. Even if Saudi oil production was operating at full-capacity, Iranian military action could disrupt oil tankers trying to leave the Persian Gulf. An Iranian block the of the Strait of Hormuz would disrupt oil deliveries to China, a key Iranian ally, and India which is a major importer of Iranian oil.  This must be taken into account when analyzing the probability of an Iranian shutdown of the Strait.

Based on the results of previous price control measures, the United States should not impose price controls since it will have undesired outcomes. Instead the United States could try to increase its domestic oil production and increase energy efficiency in vehicles and factories.

Chart of oil prices from 1947-2011. Photo: wtrg.com

Leave a Reply

Please note: comments may be published in the Algemeiner print edition.


Current day month ye@r *

More...

  • Arts and Culture Middle East Hamas Commander Reportedly Urges Hezbollah to Join Forces Against Israel

    Hamas Commander Reportedly Urges Hezbollah to Join Forces Against Israel

    JNS.org – Five months after Israeli forces tried to assassinate Hamas military commander Mohammed Deif in Gaza, Deif appears to have signed a letter that the terrorist group claims he wrote in hiding. The letter, addressed to Hezbollah chief Hassan Nasrallah, expressed Deif’s condolences for the death of Hezbollah terrorists during Sunday’s reported Israeli airstrike in Syria. Deif is said to have survived multiple assassination attempts, but he has not been seen in public for years. According to the Hezbollah-linked Al-Manar [...]

    Read more →
  • Jewish Identity Theater Shlomo Carlebach Musical Has the Soul to Heal Frayed Race Relations

    Shlomo Carlebach Musical Has the Soul to Heal Frayed Race Relations

    JNS.org – The cracks that had been simply painted over for so long began to show in Ferguson, Mo., in November 2014, but in truth they had begun to open wide much earlier—on Saturday, July 13, 2013. That is when a jury in Sanford, Fla., acquitted George Zimmerman of culpability for the death of a 17-year-old black man, Trayvon Martin. The cracks receded from view over time, as other news obscured them. Then came the evening of Aug. 9, 2014, [...]

    Read more →
  • Theater US & Canada ‘Homeland’ Season Finale Stirs Controversy After Comparing Menachem Begin to Taliban Leader

    ‘Homeland’ Season Finale Stirs Controversy After Comparing Menachem Begin to Taliban Leader

    A controversial scene in the season finale of Homeland sparked outrage by comparing former Israeli Prime Minister Menachem Begin to a fictional Taliban leader, the UK’s Daily Mail reported. In the season 4 finale episode, which aired on Dec. 21, CIA black ops director Dar Adal, played by F. Murray Abraham, justifies a deal he made with a Taliban leader by referencing Begin. He makes the remarks in a conversation with former CIA director Saul Berenson, a Jewish character played by Mandy [...]

    Read more →
  • Arts and Culture Spirituality/Tradition Placing Matisyahu Back Within a Life of Observance

    Placing Matisyahu Back Within a Life of Observance

    Shining Light on Fiction During the North Korea-Sony saga, we learned two important lessons. The first is that there are two sides to this story, and neither of them are correct because ultimately we should have neither inappropriate movies nor dictators. The second is that we cannot remain entirely fixed on the religious world, but we also must see beyond the external, secular view of reality. It’s important to ground our Torah-based thoughts into real-life activism. To view our act [...]

    Read more →
  • Arts and Culture Blogs Nine Decades of Moses at the Movies

    Nine Decades of Moses at the Movies

    JNS.org – Hollywood has had its share of big-budget biblical flops, but until now, the Exodus narrative has not been among them. Studios have brought Moses to the big screen sparingly, but in ways that defined the image and character of Moses for each generation of audiences. The first biblical epic In 1923, director Cecil B. DeMille left it to the American public to decide the subject of his next movie for Paramount. DeMille received a letter from a mechanic [...]

    Read more →
  • Arts and Culture Blogs Exodus on Screen (REVIEW)

    Exodus on Screen (REVIEW)

    JNS.org – The story of the Exodus from Egypt is a tale as old as time itself, to borrow a turn of phrase. It’s retold every Passover, both at the seder table and whenever “The Ten Commandments” is aired on television. But the latest adaptation—Ridley Scott’s epic film, “Exodus: Gods and Kings”—fails to meet expectations. Scott’s “Exodus” alters the source material to service the story and ground the tale, but the attempt to reinvent the biblical narrative becomes laughable. Moses [...]

    Read more →
  • Jewish Identity Lifestyle ‘Jewish Food Movement’ Comes of Age

    ‘Jewish Food Movement’ Comes of Age

    JNS.org - In December 2007, leaders of the Hazon nonprofit drafted seven-year goals for what they coined as the “Jewish Food Movement,” which has since been characterized by the increased prioritization of healthy eating, sustainable agriculture, and food-related activism in the Jewish community. What do the next seven years hold in store? “One thing I would like to see happen in the next seven years is [regarding] the issue of sugar, soda, and obesity, [seeing] what would it be like to rally the [...]

    Read more →
  • Blogs Education Seeds of ‘Start-Up Nation’ Cultivated by Israel Sci-Tech Schools

    Seeds of ‘Start-Up Nation’ Cultivated by Israel Sci-Tech Schools

    JNS.org – Forget the dioramas. How about working on an Israeli Air Force drone? That’s exactly the kind of beyond-their-years access enjoyed by students at the Israel Aerospace Industries (IAI) industrial vocational high school run by Israel Sci-Tech Schools, the largest education network in the Jewish state. More than 300 students (250 on the high school level and 68 at a two-year vocational academy) get hands-on training in the disciplines of aviation mechanics, electricity and energy control, and unmanned air [...]

    Read more →



Sign up now to receive our regular news briefs.