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The Gulf Crisis: Oil Fundamentals, Market Perceptions and Political Realities

The oil market has certainly not disappointed those who might have feared that it had lost its ability to shock. The dramatic events in the Gulf in August 1990 resulted in the oil price more than doubling within two months, reaching -- at over $40 a barrel -- levels not seen since November 1980. This is a faster rise than that observed during the height of the Iranian crisis, when the price of oil took seven months to double. Once again political events in the turbulent Middle East managed to generate huge shock waves in the oil industry and to toss much else besides into dizzy confusion. Of course, the governments of many oil-producing states and a number of oil companies may feel euphoric about the price-driven surge in their incomes. However, price rises of this rapidity and magnitude are bound to make any jubilation turn sour, if past experience is anything to go by -- and these days the turn-around will happen sooner rather than later.

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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: Gulf war, Oil market, Politics, OPEC, Volatility

DOI: 10.5547/ISSN0195-6574-EJ-Vol12-No2-1

Published in Volume 12, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.