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Understanding the 1990 Oil Crisis

The cause of the Iraqi invasion of Kuwait on August 2, 1990--and hence of the worldwide energy crisis that it precipitated--was economic, although the issue was one that might not appear immediately relevant to consumers at the pumps. For several months preceding the invasion, Iraqi President Saddam Hussein had been asserting, with some justification, that Kuwait was in effect engaged in economic war with Iraq, stealing oil from the disputed Rumaila field and producing in excess of its OPEC quota.The validity of Iraq's assertions has never been adjudicated by the international community, before or since the invasion. Instead, on August 6 the United Nations imposed an immediate and nearly total embargo on oil exports from Iraq, as well as on Kuwait, which Iraq had by then absorbed. This embargo removed almost 5 million barrels a day of oil from the world market. Most of the lost supply was in the form of crude oil. However, the embargo also forced the shutdown of sophisticated export refineries in Kuwait that at the time of the invasion were producing 750,000 barrels of refined product per day, including a large share of the industrial countries' supply of light products such as gasoline, jet fuel, and heating oil.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Security and Geopolitics – Energy Security

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
Q48 - Energy: Government Policy

Keywords: OPEC, Iraq, Kuwait, Oil crisis, Energy policy

DOI: 10.5547/ISSN0195-6574-EJ-Vol11-No4-2

Published in Volume 11, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.