Econ - Matthew Larson Professor Fleisher Econ H200 2/25/08...

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Matthew Larson Professor Fleisher Econ H200 2/25/08 Crude oil prices have fluctuated greatly from 1950 up until 2007. This is due to a string of geopolitical events and natural disasters. Numerous articles and expert opinions have been written on the subject that will be used to determine what exactly causes the prices rises and drops. A supply and demand framework will also be used to explain the always changing prices. As shown in the line graph provided by the New York Times, oil prices remained very stagnant up until 1973 (“Oil’s Roller Coaster Ride”). According to Dr. Jean-Paul Rodrigue of Hofstra University, this was because “disruptions in oil supply had no impact on oil prices” (Rodrigue). Dr. Rodrigue also wrote that the U.S. dominated the oil production in 1950, which meant that they could control its price (Rodrigue). It wasn’t until the Six Days War in 1973 that oil prices experienced their first sudden rise. A graph in the Economist article “Shock Treatment” shows the price make its first large spike in 1973 following years of a flat price (“Shock Treatment”). When Syria and Egypt attacked Israel in 1973, many powerful western countries supported Israel. This upset OPEC, the Organization of the Petroleum Exporting Countries, who in turn imposed an oil embargo on all countries who supported Israel (Williams). The price of oil moved from about $3 a barrel to over $12 a barrel (Williams). The rise in price caused the U.S. to decrease the amount of oil they bought. This caused the supply of oil in the U.S. to decrease. Demand for oil then increased, causing domestic prices to go through the roof. The graph from the New York Times showed that prices remained stagnant around $12 until 1979, when there was a second major spike (“Oil’s Roller Coast Ride”). The second spike was caused by the Iranian Hostage Crisis, where the American embassy in Iran was taken over by Iranian militants. This caused the U.S. to cut off all Iranian oil shipments in protests of the capture (MacIntyre). The loss of oil from Iran, who was a major supplier to the U.S.,caused another huge drop in supply for the U.S.
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This essay was uploaded on 04/07/2008 for the course H 200 taught by Professor Fleisher during the Winter '08 term at Ohio State.

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Econ - Matthew Larson Professor Fleisher Econ H200 2/25/08...

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