Leer en Español Major Geopolitical Events and Their Effect on Oil Prices For decades, the price of crude oil has been a sensitive barometer of global stability. More than just a commodity, its cost is a fever chart of geopolitical health, spiking with conflicts and crashing with unforeseen calamities. To understand the ebb and flow of the world’s most critical energy source is to read a history of modern crises. From Arab-Israeli tensions to a global pandemic, major events have consistently demonstrated their power to convulse the oil market, reshaping economies and international relations in the process. The Oil Crisis of the 1970s: A Rude Awakening The 1970s shattered the post-WW2 illusion of cheap and abundant energy. The decade was punctuated by two major oil shocks that fundamentally reconfigured the global economic landscape. The first, in 1973, was a direct consequence of the Yom Kippur War. In response to American support for Israel, the Organization of Arab Petroleum Exporting Countries (OAPEC) imposed an embargo on the United States and other nations. This was not merely a commercial dispute; it was the weaponization of oil. The effect was immediate and dramatic. The price of oil per barrel quadrupled, soaring from around USD 3 to nearly USD 12 by the time the embargo was lifted in March 1974. For a world built on cheap oil, the shock was profound. The United States, where domestic production had peaked in 1970, was particularly vulnerable, having become increasingly reliant on imports. The iconic images of the era are of long queues of cars snaking around petrol stations, a visceral symbol of a new era of energy scarcity. The second shock of the decade arrived with the Iranian Revolution in 1979. The overthrow of the Shah and the ensuing chaos crippled Iran’s oil industry, removing millions of barrels from the daily global supply. The subsequent Iran-Iraq War further decimated the production of both nations. While other OPEC members increased their output to compensate, it was not enough to prevent another price surge. By 1980, oil prices had more than doubled again, reaching over USD 36 per barrel, a fourteen-fold increase from the start of the 1970s. The decade served as a harsh lesson in the strategic importance of oil and the immense power wielded by those who control its flow. The Gulf War (1990–1991): A Swift, Sharp Shock The summer of 1990 brought another stark reminder of the Middle East’s critical role in energy security. Saddam Hussein’s invasion of Kuwait in August immediately threatened a significant portion of the world’s oil supply. Iraq and Kuwait together accounted for a substantial slice of OPEC’s output. The invasion, motivated by Iraq’s heavy debts from the Iran-Iraq war and its accusation that Kuwait was overproducing and depressing prices, sent a jolt through the market. Oil prices reacted with predictable alarm. The average monthly price of a barrel shot up from USD 17 in July to USD 36 by October. The fear was not just the loss of Iraqi and Kuwaiti oil, but the potential for the conflict to spill over into neighboring Saudi Arabia, the world’s largest oil exporter. The United Nations responded by imposing an embargo on Iraqi and Kuwaiti oil, further tightening supply. However, the 1990 price shock proved to be less severe and of shorter duration than those of the 1970s. The swift and decisive military intervention by a U.S.-led coalition to oust Iraqi forces from Kuwait calmed market fears of a prolonged supply disruption. As the coalition’s military success became apparent, prices began to fall. The episode demonstrated that while the market remained highly sensitive to geopolitical ructions in the Gulf, a rapid and effective international response could mitigate the economic fallout. The 9/11 Attacks: A Demand-Side Shock The terrorist attacks of September 11 2001 were a tragedy that shook the world. Their impact on the oil market, however, was different from previous crises. Rather than a supply shock, 9/11 triggered a sudden and severe demand-side shock. The immediate aftermath saw the world’s aviation industry grind to a halt. The grounding of aircraft and the subsequent deep aversion to air travel led to a collapse in the demand for jet fuel, a key component of oil consumption. This precipitous drop in demand sent oil prices tumbling. The attacks created a climate of profound economic uncertainty, further dampening consumer and business confidence and, consequently, energy consumption. While the price drop was significant, it was relatively short-lived as the global economy gradually found its footing. The 9/11 attacks highlighted a different kind of vulnerability for the oil market: Its deep integration with the rhythms of the global economy and the sudden impact that a non-energy-related catastrophe could have on demand. The Global Financial Crisis: A Cascade of Collapsing Demand The financial contagion that began in the American subprime mortgage market in 2007 and erupted into a full-blown global crisis in 2008 delivered the most significant demand-driven oil price shock in modern history. In the first half of 2008, oil prices had surged to unprecedented highs, peaking at over USD 147 a barrel in July. This was driven by a combination of robust demand, particularly from emerging economies like China, and stagnant production. Then, the bottom fell out of the market. As the financial crisis crippled the world’s leading economies, industrial activity seized up and commerce slowed dramatically. Demand for energy plummeted. As a result, oil prices went into a freefall, collapsing to a low of USD 32 a barrel by December 2008. This represented a staggering 80% drop in just a few months. The crisis demonstrated with brutal clarity how intertwined the fate of the oil market is with global economic health. No amount of supply-side discipline from OPEC could counteract a demand shock of this magnitude. The Iranian Nuclear Deal: A Glimmer of New Supply For years, Iran’s vast oil reserves were largely kept off the mainstream market by stringent international sanctions aimed at curbing its nuclear program. The Joint Comprehensive Plan of Action (JCPOA),
