We’ve made major strides in the last couple of decades in trying to reduce our dependency on oil, but we have a long way to go before we no longer have to worry about the price of oil altogether. All of the plastic products we rely on are made using petroleum and, of course, most of our cars are still based on internal combustion designs. That’s why many government interests in both the U.S. and Canada have been so keen to approve the Keystone pipeline. The theory is that as long as we need oil we should at least try to reduce North America’s dependence on foreign sources of oil. When we depend on these outside sources, that can have a major effect on the price of oil and really impact the lives of consumers. Here are some ways that world events have influenced the price of oil in the past.
The Founding of OPEC
In 1960, the Beatles were unheard of in North America and Elvis was in his heyday. It also happens to be the year that OPEC was founded – changing the face of the oil industry forever. OPEC stands for the Organization of Petroleum Exporting Countries. Its members were initially Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela, but the organization has expanded since then. These countries initially created OPEC to stabilize oil prices, but typically they aim to control oil prices to the benefit of their member countries. This has created challenges and price strains on the rest of the world that did not exist before.
The Yom Kippur War
The Yom Kippur War in 1973 pitted Israel against Syria and Egypt; the Arab OPEC nations quickly sided with their Arab neighbors while the U.S. sided with Israel. In an attempt to place pressure on the U.S. and other western countries that supported Israel to change their minds, OPEC restricted the flow of oil, causing oil prices to double almost overnight. Oil became scarce and long lines at the pump became commonplace.
Just as prices were starting to return to some semblance of normalcy after the war between Israel and its Arab neighbors, another crisis hit. The Shah of Iran was deposed and the Ayatollah Khomeini turned the country into an Islamic Republic. During the Iranian Revolution many Americans were held hostage for an extended period of time and the world sat on a knife edge throughout the crisis. It also caused a major disruption in oil production in the region and, predictably, world oil prices climbed significantly again.
The First Gulf War
In 1990, Iraq invaded Kuwait and events began to spiral out of control. The U.S. and its allies soon came to defense of the tiny Arab nation, but in the intervening period oil prices once again skyrocketed. If there’s one thing we’ve learned from all of these events, it’s that the price of oil is extremely volatile and vulnerable to geopolitical events.