The Truman Doctrine is a response to crisis. Under this we have major historians and communist or Soviet takeover for several countries of Eastern Europe. It is necessary only to view at a map in realization of great historical events in the world that are significant to many states. Without history many states would be rumbling with no any consent of their past, living a life without clear indication of their origin. Historical events remind and revive a country or the world its determination. In this research paper, we will focus on the history of the oil industry with a particular focus on the events associated with importance dynamics in oil price. This is one of the historical event that has great significant to many states in the world.
Beginning in nineteenth century, the oil was not used more frequently as per at the moment. It was substantially less significant economically and historically. Despite all these, there exists interesting parallels in events currently and over those decades. The major post-World-war-II oil shocks events are as following the Suez Crisis of 1956 to 1957, the Iranian revolution in 1978 to 1979, and the Iran/Iraq war started in 1980. (Adelman, 1972, p. 185)We will also consider even those minor disturbances caused by this event. Illuminates, lubricants, and solvents were obtained from various sources like oil from lard and whale, alcohol from agricultural produce, also turpentine from wood.
The oil had its own history even before nineteenth century, but in this paper we will consider the bracket from 1945 to 2008. Starting in the year 1946, the United State has been the world’s largest consumer of oil. Not only being the biggest consumer but also the biggest producer of petroleum until 1974. From this year the Soviet Union surpassed the United States. Previously, in the post war era, prices of oil were relatively marked relatively to that of Gulf of Mexico. (Hamilton, 1983, p. 52)This made the Texas Railroad Commission a major player in the world oil market. Despite the rules and regulations that increased the amount of oil, which would ultimately get recovered from U.S fields, it had significant outcomes for the prices’ behaviour. The Texas Railroad Commission set the production allowable on the basis of current market demand instead of conservation. Every month, the Texas Railroad Commission would forecast product demand ate the prevailing price and set allowable levels of production that were consistently with the demand.
The end of World War II marked a bold alteration in the transformation to the automotive world. At that moment, the demand for products related to petroleum in U.S raised by approximately 12%. This happened between 1945 and 1947. Crude oil increased with a greater margin of over 85% just in the two years, though this proved insufficient to prevent shortage. In the same year 1947, the standard oil of Indiana and Phillips Petroleum Company announced strategies to ration allocations of gasoline to dealers, consequently in the fall there were reports concerning shortages in Michigan. In 1948 an overall decline in residential construction began. More specific, recession dated from 1948 November. On the process, the supply disruptions and the Korean conflicts were experienced between 1952 and 1953. An order from the Office of price stabilization froze the price of oil 1950 to 1953. “The Prime Minister Mohammad Mossadegh nationalized oil industry of Iran in the summer of 1951 and a boycott of Iran in response to withdrawing approximately 19 million barrels each month Iranian production from world markets”. (Edelstein, 2009, p. 38)
In the response, the United States and British governments ordered a cut of about 30% in delivering of fuel for civilian flights, in the same time Canada suspended all private flying. The Suez crisis followed after the price control was lifted in 1953 when the posted price of west Texas Intermediate raised 10%. In this Suez Crisis, Egyptian president nationalized the Suez Canal in 1956. The event had many consequences all over the country and hoping to regain control of the canal, Britain and France pushed Israel to invade Egypt’s Sinai territories. This was followed later by their military forces. The process had skirmishes, where in the process of conflict more than 40 ships were sunk; this blocked the canal through which around 2 million barrels each day were transported. In the same process, several pumping stations belonging to Iraq Petroleum Company’s pipeline got sabotaged (Hamilton, 1983, p. 230). This resulted to falling of total oil production from the Middle East by a margin of 1.7mb/d in 1956. These consequences had vital problems that were experienced for decades that followed. The connection had dramatic economic consequences for Europe that had been relying on the Middle East for most of its petroleum. With time, production form external side of the Middle East was able to fill in most of the gaps. Giving an example for the case of U.S. exports of crude oil and the refined products raised a third of a million barrels each day. By 1957 December, the total world production of petroleum was back up to where it had been previously. This made Middle East production to return to the pre-crisis level the following year (Al-Sowayegh, 1984, p. 77).
The events concerning and revolving around oil prices are not static but dynamic. Between 1969 and 1970 the modest prices increased. This increase of the oil prices is the reason behind the response to the greater inflationary pressures in the early 1970s. Let’s consider the case between 1973 and 1966 concerning the age of OPEC. It is significant to give way to subsequent events into the perspective of some critical bigger trends. In the late 1960s, the TRC rapidly increased the allowable production levels for oil wells in the state. This was due not to stating regulations instead of declining the flow rates for mature grounds.
This oil shocks had some causes which were unavoidable. Some were observed on petroleum demand. Understanding the history of the oil shock we check the trend in price since the price of oil is the key determinant of amount demanded. We have historical supply disruptions. One of the major shock on oil occurred in 2007 and 2008. This episode qualifies to be termed as the biggest shocks to oil price on record. Considering the supply, although occasional dramatic news for example hurricanes in Gulf of Mexico in 2005, Nigerian turmoil, and Iraq on-going strike. The global production stagnated in this period. In most of production fields, pressure falls and daily produce sizes begin to decline. Decline in production is the major cause of former OPEC member Indonesia becoming an oil importer and eventually dropping out of OPEC in the late 2008 (Dahl, 1991, p. 35).
The transition to a higher share has been bumpier because of the system of price regulations. This resulted from declining production rates from U.S fields, which further increases price of oil. In the year 1973, most of the gasoline stations had difficulty in obtaining wholesale gasoline and in the process the consumers began to receive the effects. The event related to oil shock that followed this juncture is the OPEC embargo, between 1973 and 1974. Syria and Egypt led the attack on Israelites, which started on October 1973. It is this moment when the Arab members of the Organisation of Petroleum Exporting Countries announced an embargo concerning oil exports to several chosen countries that were seen as supporting Israel. This was then followed by significant cutbacks in total oil production of the OPEC. The Arab production was so low about 4.4mb/d from previous season. A shortfall corresponding to 8.0% of output globally was felt in the oil sector (Jenkins, 1985, p. 25).
In 1980s, Iran-Iraq war was on and Iranian production had returned to approximately half of its pre-revolutionary sizes. Later it was knocked out immediately Iraq launched a war against the country. The total loss of production for the two countries again totalled to approximately 7% of the world production at that time. Oil price measure defined the two wars either as one prolonged war or as two separate shocks. This event had vital consequences that made the event to be termed as significant historical event. The National Bureau of Economics Research characterizes the economic problems at that time as two very different economic recessions having the seventh post-war recession ending in July 1980 then followed abruptly by the eighth post-war recession starting the same year on July (Yergin, 1999, p. 28).
The war between Iran and Iraq led to the great price collapse. It would continue for a long period, with oil production from the two countries having a difficult in recovering their normal state. This long term want response of consuming countries led to the price hikes of the year 1970s proving that it was substantial and global petroleum usage dropped drastically. In Saudi Arabia included one of the affected countries in this historical event, since it voluntarily shut down approximately three quarter of its production. This was a positive strategy though did not prevent a 30% decline in the nominal price of oil. In the process of Saudi Arabia abandoning the efforts, and beginning to ramp production back up in 1986 causing the collapse of oil price from 27 barrel dollars to 12 barrel dollars. It was very unfortunately for Iraq to face another down fall during 1990, this brought Kuwait’s substantial production down with it, since the country invaded Kuwait in that year. The two countries accounted about 9% of the world production. In the same time there was a bit of concern that the conflict might spill over into the Saudi Arabia.
In the year 2008, the explanation of the price shock need that market participants could have resulted to the little inking in the same year. This eventually led to massive economic deterioration. In essentially any theoretical model of the economic effects of a change in the price of oil was solely concerned with the consequences only on GDP of a particular country. In examining the historical consequences caused by the oil shock especially in 2007 and 2008 we begin with motor vehicle sales. It was in response to the great variation in price of the oil (Olmstead, 1985, p. 80). Previously before 2007, reports show that sales in the U.S of domestically manufactured light vehicle being into categories according to the type of cars against trucks. The sport utility vehicle category was the outselling cars in the U.S market for those previous decades. The tragic hit the company in 2007, sales of SUVs started to plunge and dropped for approximately 25% relative to the preceding year. This was not the end of the downfall, but immediately SUV sales rebounded when the price of gas started to fall in the following year, only to suffer another hit. There were a general drop in income and price of gasoline raised. These increased the number of cars from imports. Imported car were up beyond 15% by the end of that year. Most of the cars that were imported are the light trucks. The Amer4ican consumers were shifting from SUVs to smaller cars. The aim was to save on the little income since the small trucks were more efficient on fuel (Hamilton, 1983, p. 28). This scenario resulted to a significant shock to the U.S auto industry in 2008. The situation was quite comparable to the wake of the oil shock of 1990, in terms of magnitude. The reason why this brought a lot of changes in U.S it is because the contribution of motor vehicles held a big part of its GDP.
The historical shocks can be avoided or prevented by setting some measures. Crisis sometimes occur for a state to be able to realize that crisis are part of life and every states need to have ready measure either to stop or regulate the magnitude of the crisis to a states’ GDP effect (Hughes, 2008, p. 34). Lack of strategic measures makes a small crisis to hit the global economy. According to the legal measures, the government can set consumption measures which regulate the consumption especially the time of crisis. Without these measures, a country is exposed to historical shocks that leave a country in a mess and it takes time to recover from such tragic (McMillin, 1994, p. 39).
History is created from a past experience and the records about it make it known for decades after the situation. Past experience can be positive or negative, in this paper we analysed the negative impact that historical shock about oil crisis and the measures to curb the impact. It is clear that scholars create wealth from a historical situation and this becomes a way of spreading the information to coming generations.
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