Oil crisis
The term oil crisis is commonly used to describe periods of history when the price of crude oil and other petroleum products has reached a level that has made it very "expensive". This has a knock-on effect on the whole economy - from a commercial side, the production costs of electricity rise, which raises manufacturing costs. From a consumer side, the price of petrol for cars and other vehicles rises, leading to reduced consumer confidence and spending.
Causes
The price of oil (and broadly, gas, though the analogy is not absolute) on the open market is driven by the fundamental principles of supply and demand.
Oil supply
Oil supply is largely controlled by the national oil companies of nations with significant oil reserves, including the UAE, Saudi Arabia, Venezuela, Norway and Kuwait. Many of these countries have formed a cartel known as OPEC (Organization of Petroleum Exporting Countries). As OPEC controls a very large proportion of the total global oil output, they have a strong leverage on the global oil prices. If OPEC decides to reduce the output quotas of its member countries, this will tend to drive up the price of oil as the supply diminishes. Likewise, OPEC can step-up oil production to increase supplies and drive down the price. The politics that lead OPEC to perform such actions deserve an article in their own right.
Oil demand
As a proportion of the total, by far the greatest demand for oil and other petroleum products comes from the commercial sector, who use oil to generate electricity, run machinery and so on. In times of economic prosperity, therefore, the demand for oil will increase. Oil demand is also seasonably variable as the countries of the Northern hemisphere, who dominate global oil consumption, consume more oil in the winter in order to produce electricity and heat. In fact, the United States alone represents nearly 60% of global oil demands and a particularly cold winter in North America can strongly affect global prices.
1970s
The oil crisis of the 1970s was precipitated by an embargo, in 1973, of many of the major Arab oil-producing states, in response to US support of Israel. This was compounded in 1979 when revolutionaries in Iran overthrew the Shah and blocked oil supplies.
2000s
We are currently (2003) seeing a period of extended high oil prices, with the standard Brent crude around $33/barrel. The causes of this include:
- The oil strikes in Venezuela as a result of protests directed towards the President Hugo Chavez. Venezuela is one of the principal suppliers of petroleum to the United States.
- The possibility of a war with Iraq, itself a (potential) producer of vast quantities of oil and gas. Though Iraq is currently under sanctions which limit its oil output to the open market, it has vast reserves which could strongly affect future supply rates. Uncertainty about the safety and potential of these supplies in the event of a war has lead to an increase in stockpiling of extant oil which has had a knock-on effect on world supplies.