The 1990 oil price shock occurred in response to the Iraqi invasion of Kuwait on August 2, 1990, Saddam Hussein's second invasion of a fellow OPEC member. Lasting only nine months, the price spike was less extreme and of shorter duration than the previous oil crises of 1973–1974 and 1979–1980, but the spike still contributed to the recession of the early 1990s in the United States. The average monthly price of oil rose from 17perbarrelinJulyto36 per barrel in October. As the U.S.-led coalition experienced military success against Iraqi forces, concerns about long-term supply shortages eased and prices began to fall.
On August 2, 1990, the Republic of Iraq invaded the State of Kuwait, leading to a seven-month occupation of Kuwait and an eventual U.S.-led military intervention. While Iraq officially claimed Kuwait was stealing its oil via slant drilling, its true motives were more complicated and less clear. At the time of the invasion, Iraq owed Kuwait 14billionofoutstandingdebtthatKuwaithadloaneditduringthe1980–1988Iran–IraqWar.Inaddition,IraqfeltKuwaitwasoverproducingoil,loweringpricesandhurtingIraqioilprofitsinatimeoffinancialstress.Inthebuilduptotheinvasion,IraqandKuwaithadbeenproducingacombinedofoiladay.Thepotentiallossofthesesupplies,coupledwiththreatstoSaudiArabianoilproduction,ledtoariseinpricesfrom21 per barrel at the end of July to 28perbarrelonAugust6.Ontheheelsoftheinvasion,pricesrosetoapeakof46 per barrel in mid-October.
The United States' rapid intervention and subsequent military success helped to mitigate the potential risk to future oil supplies, thereby calming the market and restoring confidence. After only nine months, the spike had subsided, although the Kuwaiti oil fires set by retreating Iraqi forces were not completely extinguished until November 1991, and it took years for the two countries' combined production to regain its former level.
The U.S.
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The price of oil, or the oil price, generally refers to the spot price of a barrel () of benchmark crude oil—a reference price for buyers and sellers of crude oil such as West Texas Intermediate (WTI), Brent Crude, Dubai Crude, OPEC Reference Basket, Tapis crude, Bonny Light, Urals oil, Isthmus, and Western Canadian Select (WCS). Oil prices are determined by global supply and demand, rather than any country's domestic production level. The global price of crude oil was relatively consistent in the nineteenth century and early twentieth century.
A drop in oil production in the wake of the Iranian Revolution led to an energy crisis in 1979. Although the global oil supply only decreased by approximately four percent, the oil markets' reaction raised the price of crude oil drastically over the next 12 months, more than doubling it to . The sudden increase in price was connected with fuel shortages and long lines at gas stations similar to the 1973 oil crisis. In 1980, following the onset of the Iran–Iraq War, oil production in Iran fell drastically.
In October 1973, the members of the Organization of Arab Petroleum Exporting Countries (OAPEC), led by King Faisal of Saudi Arabia, proclaimed an oil embargo targeted at nations that had supported Israel during the Yom Kippur War. The initial nations targeted were Canada, Japan, the Netherlands, the United Kingdom and the United States, though the embargo also later extended to Portugal, Rhodesia and South Africa. By the end of the embargo in March 1974, the price of oil had risen nearly 300%, from US to nearly globally; US prices were significantly higher.
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