Sign up now to receive our regular news briefs.

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. Comments written in all caps will be deleted.


Current day month ye@r *

More...

  • Features Unpacking the Nagorno-Karabakh Conflict and Its Ripple Effect on Israel’s Region

    Unpacking the Nagorno-Karabakh Conflict and Its Ripple Effect on Israel’s Region

    JNS.org – Aside from Israel itself, those with a vested interest in the Jewish state are accustomed to tracking developments related to Middle East players such as Iran, Syria, Jordan and Egypt. But much global attention has recently focused on the Caucasus region at the Europe-Asia border, specifically on the suddenly intensified violence between Azerbaijan and Armenia in the mountainous Nagorno-Karabakh area of western Azerbaijan. The Nagorno-Karabakh conflict, while not taking place in Israel’s immediate neighborhood, does have what one scholar called […]

    Read more →
  • Blogs Features Earth Day 2016: Israel Shines in Water Technology, Recycling, Renewable Energy

    Earth Day 2016: Israel Shines in Water Technology, Recycling, Renewable Energy

    JNS.org – On Friday, April 22, 196 nations across the world mark Earth Day, the annual day dedicated to environmental protection that was enacted in 1970. Not to be forgotten on this day is Israel, which is known as the “start-up nation” for its disproportionate amount of technological innovation, including in the area of protecting the environment. For Earth Day 2016, JNS.org presents a sampling of the Jewish state’s internal achievements and global contributions in the environmental realm. Water conservation Israeli […]

    Read more →
  • Arts and Culture World New Documentary Explores Holocaust Humor, Role That Laughter Played in Death Camps

    New Documentary Explores Holocaust Humor, Role That Laughter Played in Death Camps

    Holocaust humor and the role that laughter played in the lives of Jews during World War II are the focus of a documentary that made its world premiere on Monday at the Tribeca Film Festival in New York City. In The Last Laugh, first- and second-generation survivors, as well as famous Jewish and non-Jewish comedians, discuss their thoughts on when joking about the death camps is appropriate or taboo. “Nazi humor, that’s OK. Holocaust humor, no,” Jewish comedic giant, actor and filmmaker Mel Brooks says in the film. “Anything I […]

    Read more →
  • Arts and Culture Blogs Tragedy Culminates in ‘Celebration,’ Says Israeli Author Who Lost Son to Terror

    Tragedy Culminates in ‘Celebration,’ Says Israeli Author Who Lost Son to Terror

    JNS.org – Sherri Mandell’s life was devastated on May 8, 2001, when her 13-year-old son Koby was murdered by terrorists on the outskirts of the Israeli Jewish community of Tekoa. Yet Mandell not only shares the story of her loss, but also celebrates the lessons she has learned from tragedy. Indeed, “celebrate” is this Israeli-American author’s word choice. Her second book, The Road to Resilience: From Chaos to Celebration (Toby Press), came out earlier this year. The lesson: in every celebration, there is […]

    Read more →
  • Features Opinion For Alan Gross, Cuban Prison Didn’t Harden His Heart or Weaken His Ambition

    For Alan Gross, Cuban Prison Didn’t Harden His Heart or Weaken His Ambition

    JNS.org – Alan Gross used to be nothing more to me than a tragic headline. When I started my position at this news service in July 2011, Gross had been imprisoned in Cuba since December 2009 for what that country called “crimes against the state.” Gross, a subcontractor for the United States Agency for International Development, went to Cuba to help the Jewish community there access the Internet. After his arrest, he received a trial he describes as a “B movie,” […]

    Read more →
  • Arts and Culture Features New Movie Shows How Global Economic Instability Grew From Very Local Greed

    New Movie Shows How Global Economic Instability Grew From Very Local Greed

    JNS.org – When I saw the recent Academy Award-winning film “The Big Short,” I was struck by the sheer genius of the financiers who devised the schemes and packaged the loans for resale, but it left me with unanswered questions about how the properties these loans represented were moved. “The Big Short” was largely about paper transactions, big money, and wealthy investors, and it mildly touched on the way the actual end-users — the home buyers and brokers — played into this […]

    Read more →
  • Blogs Book Reviews Psychiatry and the Spirit

    Psychiatry and the Spirit

    Why do we think so negatively about psychiatrists that we still insult them by calling them shrinks? Some medics might be quacks, but we don’t generally refer to them as witches! Shrinks; The Untold Story of Psychiatry, by Dr. Jeffrey Lieberman, is a sobering account of how psychiatry has swung from a marginal, unscientific mixture of weird theories into one of the most common and pervasive forms of treatment of what are commonly called “disorders of the mind.” Is it […]

    Read more →
  • Features Opinion At Forbes Summit in Israel, Entrepreneurship Is a ‘Common Language’

    At Forbes Summit in Israel, Entrepreneurship Is a ‘Common Language’

    JNS.org – Nine months ago, Seth Cohen, director of network initiatives for the Charles and Lynn Schusterman Family Foundation, and Randall Lane, editor of Forbes Magazine, were schmoozing about the “vibrancy of Tel Aviv and soul of Jerusalem,” as Lane put it. They dreamed about how they could bring young and innovative millennials to the so-called “start-up nation.” From April 3-7, Forbes turned that dream into a reality. Israel played host to the first-ever Forbes Under 30 EMEA (Europe, the Middle East, and Africa) […]

    Read more →