Oil Security

Oil stands alone among primary commodities in its potential for sending economic shock waves across the world. The value of oil production is one and a half times the world's total production of food grains; demand is unresponsive to price in the short run; and the world's oil resources are heavily concentrated in the Middle East where political disturbances have been chronic and oil supply is subject to sudden interruption. Together, these factors have combined since 1973 to make oil a virtual rogue elephant in the world economy. In 1973-74 and in 1979-80, interruptions or the threat of interruptions of oil supplies from the Persian Gulf caused widespread economic distress - inflation, unemployment, loss of business confidence - from which recovery was slow and painful. In 1990, when Iraq moved to seize Kuwait and to threaten Saudi Arabia, there was a prompt and aggressive international response, largely to protect Saudi Arabia's oil fields and to maintain the world supply of oil. With the Gulf War came a temporary flare-up of inflation and its ramifications were enough to qualify the 1990-91 episode as the third oil shock, or more accurately, a "minishock". In this book, the authors assess the world market outlook based on underlying trends in world oil supply and demand. They take into account prospects for investment in oil production in the Persian Gulf states, the former Soviet republics, and Latin America; environmental factors and policies; and political uncertainties in the Middle East.