Oil and Economic Recession essays

Oil and Economic Recession essays Two months ago (Sep. 2000), the worlds economies faced a great problem. The oil price went enormously up and the Dollar followed the same tack. It was made very clear that almost all countries would have a serious problem due to oils importance. Oil provides fuel for heating, transport, and machinery, and is a basic input for petrochemicals and many household products ranging from plastic utensils to polyester clothing. From the beginning of this century until 1973 the use of oil increased steadily. Economic activity was organized on the assumption of cheap and abundant oil. In 1973-74 there was an abrupt change. The main oil-producing nations belong to OPEC(the Organization of Petroleum Exporting Countries). OPEC decided in 1973 to raise the price for which their oil was sold. OPEC thought that cutbacks in the quantity demanded would be small since most other nations were very dependent on oil and had few commodities available as potential substitutes for oil. Thus OPEC correctly anticipated that a substantial price increase would lead to only a small reduction in sales volume. It would be very profitable for OPEC members. Between 1973 and 1974 the price of oil tripled, from $2,90 to $9 per barrel. After a more gradual rise between 1974 and 1978 there was another sharp increase between 1978 and 1980, from $12 to $30 per barrel. The dramatic price increases of 1973-74 and 1978-80 have become known as the OPEC oil price shocks. In the early 1980s, however, OPECs resolve began to weaken. Although oil consumption increased steadily over most of the 1970s, the 1979-1980 rebound resulted in a drop in demand for oil in the industrial countries. The major reasons for the decline in consumption were the worldwide recession, the increase in crude-oil prices, the substitution of other fuels for oil, the effectiveness of national energy policies aimed at conservation, the changing structure of industry, and the decreasing ...