Concept

1990 oil price shock

Summary
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 17perbarrelinJulyto17 per barrel in July to 36 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 14billionofoutstandingdebtthatKuwaithadloaneditduringthe19801988IranIraqWar.Inaddition,IraqfeltKuwaitwasoverproducingoil,loweringpricesandhurtingIraqioilprofitsinatimeoffinancialstress.Inthebuilduptotheinvasion,IraqandKuwaithadbeenproducingacombinedofoiladay.Thepotentiallossofthesesupplies,coupledwiththreatstoSaudiArabianoilproduction,ledtoariseinpricesfrom14 billion of outstanding debt that Kuwait had loaned it during the 1980–1988 Iran–Iraq War. In addition, Iraq felt Kuwait was overproducing oil, lowering prices and hurting Iraqi oil profits in a time of financial stress. In the buildup to the invasion, Iraq and Kuwait had been producing a combined of oil a day. The potential loss of these supplies, coupled with threats to Saudi Arabian oil production, led to a rise in prices from 21 per barrel at the end of July to 28perbarrelonAugust6.Ontheheelsoftheinvasion,pricesrosetoapeakof28 per barrel on August 6. On the heels of the invasion, prices rose to a peak of 46 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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