A Quick History of War, OPEC, and Gas Prices
Historical trends in gas prices can largely be explained by changes in supply and demand. Demand for oil rose through the 20th century. Although this put upward pressure on price, supply initially increased even more rapidly as people produced newer and less expensive production methods. Professor Art Carden shows how oil prices changed based on various events that caused shifts in the demand and supply of oil.
Political events, economic growth, and international conflicts, among other things, affect the supply or demand of oil. These, in turn, contribute to the prices we see at the pump. Prof. Carden offers several examples, including the following:
– The 1973 Yom Kippur war led to decreased supply as oil producers cut production to punish countries that supported Israel: prices rose.
– Iran’s revolution in 1979 and Iraq’s invasion of Iran in 1980 decreased supply: prices rose.
– The East Asian crisis led to a reduction in the demand for oil: prices dropped.
– Surging economies in China and India in the last decade combined with political instability in the Middle East have increased demand for oil and decreased available supply: prices rose.
Should we be worried that we’ll run out of oil? Prof. Carden thinks not. He argues that prices, profits, and losses provide incentives for innovation and improvements. “People are pretty clever,” he says. “They come up with innovative and ingenious ways to solve problems every day.”