After the Gulf Crisis: The Third Oil Shock is Yet to Come

Abstract

The Gulf crisis had a major impact on world oil markets: for several months the flow of oil and the capacity to produce oil in the future in several key oil-producing countries were directly or indirectly threatened. A genuine oil shock was avoided because those who are involved in oil markets and in related international organizations maintained their composure. But the end of the crisis and the return to moderate price levels does not mean that medium-term dangers in oil markets have been wholly averted. Indeed an examination of market fundamentals suggests that a return to a strong dependence on supplies from the Gulf is probable during this decade if the price of oil does not rise sufficiently to bring about a growth trend in oil production by non OPEC countries consistent with growth in world oil consumption. That is what is at stake in relation to the possibility of dialogue between producing and consuming countries, a dialogue which should be directed not to fixing oil prices, but to assuring price trends that check oil demand and encourage supply development everywhere in the world.