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.”
Professor Carden’s Data Sources
Cowen, Tyler and Alex Tabarrok, Modern Principles of Economics, 2nd ed.
Learn More Beginner Resources
www.opec.org [website]: This website has useful data, commentary, and press about OPEC
A Brief History of OPEC [article]: TIME Magazine’s primer on the history of OPEC
“OPEC” [Wikipedia entry]: A beginner’s guide to the history, economics, and controversy surrounding the Middle-Eastern oil cartel
“1973 Oil Crisis” [Wikipedia entry]: A guide to the infamous Yom Kippur War oil embargo and its economic and political effects
How Oil Prices Affect the Economy (video): A brief explanation of how our dependence on oil dictates the ups and downs of the economy
Learn More Advanced Resources
“Opec” [encyclopedia entry]: The Concise Encyclopedia of Economics explains OPEC
Oil Prices [article]: Robert P. Murphy uncovers the mystery behind volatile oil prices and prognosticates the future of the world oil industry
If Oil Industry Profits Are Up, Why Aren’t Prices Down? (video): Jim Lehrer interviews Chevron’s Vice Chairman Peter Robertson about the price of oil and profits in the oil industry
A Quick History of War, OPEC, and Gas Prices
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