The energy crisis
The year 1973 brought an end to the era of secure, cheap oil. In October, as a result of the Arab-Israeli War, the Arab oil-producing countries cut back oil production and embargoed oil shipments to the U.S. and the Netherlands. Although the Arab cutbacks represented a loss of less than 7 percent in world supply, they created panic on the part of oil companies, consumers, oil traders, and some governments. Wild bidding for crude oil ensued when a few producing nations began to auction off some of their oil. This bidding encouraged the OPEC nations, which now numbered 13, to raise the price of all their crude oil to a level as high as eight times that of a few years earlier. The world oil scene gradually calmed, as a worldwide recession brought on by the higher oil prices trimmed the demand for oil. In the meantime, most OPEC governments took over ownership of the oil fields in their countries.
In 1978 a second oil crisis began when, as the result of the revolution that eventually drove the shah of Iran from his throne, Iranian oil production and exports dropped to negligible levels. Because Iran had been a major exporter, consumers again panicked. A replay of 1973 events, complete with wild bidding, again forced up oil prices during 1979. The outbreak of war between Iran and Iraq in 1980 gave a further boost to oil prices. By the end of 1980 the price of crude oil stood at 19 times what it had been just ten years earlier.
The very high oil prices again caused a worldwide recession and gave energy conservation a big push. As oil demand slackened and supplies increased, the world oil market slumped. Significant increases in non-OPEC oil supplies, such as in the North Sea, Mexico, Brazil, Egypt, China, and India, pushed oil prices even lower. USSR production reached 11.42 million barrels per day by 1989, which accounted for 19.2 percent of world production in that year.
Despite the low world oil prices that have prevailed since 1986, concern over disruption has continued to be a major focus of energy policy in the industrialized countries. The short-term increases in prices following Iraq’s invasion of Kuwait reinforced this concern. Owing to its vast reserves, the Middle East will continue to be the major source of oil for the foreseeable future.