[an error occurred while processing this directive]
BBC News
watch One-Minute World News
Last Updated: Friday, 17 October, 2003, 18:55 GMT 19:55 UK
Oil: Thirty years of turmoil

Analysis
By Andrew Walker
BBC News economics correspondent

Opec's decisions to cut output in 1973 led to a global recession
Opec's decisions to cut output in 1973 led to a global recession
The price of crude oil has fluctuated sharply since the first oil crisis exactly thirty years ago, plunging the world economy into phases of boom and bust.

Oil is the lifeblood of industrial economies.

Some would say the technology exists to break that dependence. But it is still not very widely used.

Transport is the sector most dependent on oil.

Petroleum powers almost all cars, lorries, buses and planes and many trains too.

Well over 90% of the energy for transport is produced by burning oil products.

Crude oil is also an important source of energy for electricity (though not the largest).

It is also a vital raw material for plastics, fertilisers and many other products of the chemical industry.

So when the taps are turned off, or when it just gets expensive, the economic consequences are severe.

First oil crisis

It was during the oil crisis of 1973 when the world suddenly realised just how dependent it was on the Middle East and OPEC for its oil.

Key facts and figures on world oil reserves, consumption and production

In the wake of the Yom Kippur war between Israel and its Arab neighbours, the Arab oil producing countries slapped an embargo on supplies to the US on 20 October 1973.

For the wider world, oil prices went through the roof, from around $3 a barrel before the war to over $11 by early the following January.

It gave economics a new word: stagflation.

High oil prices contributed to inflation. They also imposed higher costs on consumers and businesses, slowing economic growth in the process.

Not long after the crisis there was a recession in 1975, the first of four world downturns where oil price increases caused by events in the Middle East played a key role.

There were often delays before the price rise did its wider economic damage, but the link was still there.

Recession link

In 1973 it was the Yom Kippur war and the Arab oil embargo that led to a global recession in 1975.

Black market fuel along the road side in Lagos
Higher fuel costs in developing countries hurt growth
Then at the end of the decade there was Iran's Islamic Revolution.

Production in Iran dived from a peak of around six million barrels a day shortly before the revolution, to a low of below one million.

And just as oil output started to recover in the early 1980s, Iran became embroiled in a long and nasty war with Iraq.

The resultant supply disruptions contributed to another global recession in 1982/3.

Gulf War I and II

And then there was the Gulf crisis of 1990 and 1991.

The Iraqi invasion of Kuwait and the subsequent sanctions cut off oil supplies from the two countries.

Again, the price of crude oil climbed and there was another global recession.

And then there was 2001.

That is slightly harder to read.

It was a year of weaker global performance, arguably a recession (the IMF says not, but plenty of other economists say it was).

And that was preceded by a period in which oil prices were on the high side.

In real terms (allowing for general inflation), although nowhere near the peaks of the mid-1980s, oil prices were still sharply higher than the lows they hit in 1998.

This time Middle East political and military developments did not play as much of a role.

It was more a case of the producers' cartel restraining supplies at a time when demand was growing strongly.

Perhaps the price rise was a factor in the 2001 slowdown - not the main one, which was the bursting of the technology share price bubble, but a significant one nonetheless.

1973 was the first taste of all this, and it has to be said for oil consumers it has left a nasty after-taste.


SEE ALSO:
Oil price rises after Israeli raid
06 Oct 03  |  Business
Nigeria fuel prices soar
02 Oct 03  |  Business
Nigeria tackles fuel subsidies
18 Jul 03  |  Business
Oil surges on surprise Opec cut
24 Sep 03  |  Business


RELATED INTERNET LINKS:
The BBC is not responsible for the content of external internet sites


PRODUCTS AND SERVICES

News Front Page | Africa | Americas | Asia-Pacific | Europe | Middle East | South Asia
UK | Business | Entertainment | Science/Nature | Technology | Health
Have Your Say | In Pictures | Week at a Glance | Country Profiles | In Depth | Programmes
Americas Africa Europe Middle East South Asia Asia Pacific