The history of oil has witnessed periods of conflict and competition, with the world’s insatiable thirst for this vital resource driving global growth over the years. Oil wars, particularly those between OPEC (the Organisation of the Petroleum Exporting Countries) and non-member states, have had a profound impact on oil prices and, consequently, global inflation rates. These conflicts have been a recurring topic in geopolitics and economics, resulting in far-reaching consequences for economies, energy security, and international relations.
Looking back at history, OPEC was founded in 1960 by five countries: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Its purpose was to counter the dominance of Western oil companies and unify its members to collectively influence the global oil market by regulating production and prices. In the 1970s, OPEC became a powerful force, using its influence through the oil embargo in 1973-1974 and the Iranian Revolution in 1979. These events led to a significant surge in oil prices and direct effects on the global economy.
The oil embargo in 1973-1974, following the October War, was a pivotal moment in the history of oil wars. OPEC members, led by Saudi Arabia, imposed an embargo on oil exports to the United States and its allies, resulting in a fourfold increase in oil prices and sparking a global oil crisis, which led to a worldwide recession and significant inflation, especially in oil-importing nations.
Another historical example is the Iran-Iraq War (1980-1988), in which two OPEC member states engaged in a lengthy and devastating conflict.
Oil wars have not been limited to the pages of history. A recent example of the impact of ongoing conflicts on oil prices and high inflation occurred in 2020, when Russia and Saudi Arabia engaged in a production dispute, leading to a short-lived price war that caused oil prices to collapse, with the price of West Texas Intermediate crude falling into negative territory for the first time in history. This conflict, coupled with the subsequent effects of the COVID-19 pandemic and the Russia-Ukraine war, created significant economic disruptions and inflationary pressures in many countries. Many analysts believe that the current conflict in the region will have reverse effects on recent global inflation trends, potentially undermining the efforts of central banks over the past year and a half.
Understanding the impact of oil wars on oil prices and inflation is crucial for industry stakeholders, policymakers and investors. These conflicts emphasise the need for diversifying energy sources, enhancing energy efficiency and developing strategies to mitigate the economic effects of oil wars in the future. This is because the experience of the past decades has shown that wind and solar energy alone are insufficient at present to meet global energy demand. Furthermore, they cannot continuously provide energy without interruptions, as it also depends on factors like prolonged and consistent sunlight or wind. Therefore, support for other clean energy sources, such as hydroelectric power, is essential.
In an interconnected world, the dynamics of the oil market will continue to play a pivotal role in the global economy, making it imperative to monitor these ongoing challenges and deal with them. Ultimately, it is the people who bear the cost of conflicts and disputes, regardless of their location and time.