Recent History

Prior to October 1973 the world oil suppliers had very little say in setting the Oil prices. It was the importers – big oil companies, which set the prices. Arab-Israel war of 1973 changed that. Oil became the weapon of political pressure. Producers became assertive and organized themselves into the cartel (OPEC). This group not only protected the producer’s interest but also manipulated prices during an economic or political trouble. Oil prices jumped from about $3 a barrel in 1973 to $12 a barrel in 1974. There upon OPEC which had been formed as a study and statistics organization in 1960 became a primary tool to set production quotas for the member countries, hence the prices. Oil prices reached $30 a barrel from 1978 to 1981.

Taking of the US Embassy and its diplomats as a hostage in Tehran , Iran and expelling of Shah of Iran provided the ammunition for this sudden jump in prices. This uncertainty and election of President Reagan resulted in a major economic recession from 1981 to 1983. The demand reduced and the oil producers relented. Individual OPEC members kept pumping Oil in competition to each other to maximize cash inflow to them hence crashed the prices. This was good news to the rest of the world. Oil prices again hit $13 a barrel in 1985. This was the same price as in 1974.