The Iran-Iraq war ended in a stalemate on 20 August 1988 after nearly 8 years of fighting. It was expected that both countries would try to increase production rapidly. Nevertheless, after the cessation of war, the spot crude oil price recovered from a relatively low point in mid- 1988. By mid-1990, the global economy had slid into a recession. This preceded Iraq’s invasion of Kuwait. The origins of the latter event can be traced back to Iraq’s difficult economic position at the end of the Iran-Iraq war and political ambitions of Saddam Hussein. Iraq had large international debts and was struggling to service them. It was also supporting an army of one million people (from a population of 18 million) and wanted to re-build its infrastructure and production capacity. Iraq wanted more oil revenue, particularly from higher prices. Activity to increase production capacity in Iraq and Iran renewed friction in OPEC regarding production quotas. Making room for production increases by Iraq and Iran would mean quota cuts for others. However, Kuwait and United Arab Emirates were producing above their quotas and wanted large quota increases. Kuwait announced plans to increase its production capacity. Iraq saw them as obstacles to higher prices and oil revenue for Iraq. OIL MARKET RESPONSES TO CRISES:OIL MARKET RESPONSES TO CRISES: AN HISTORICAL SURVEYAN HISTORICAL SURVEY 96
DR AFT AC I L AL L E N C O N SU LT IN G After the Iran-Iraq war, Iraq requested that Kuwait waive a debt of US$14 billion owed by Iraq that had had built up during the war. Talks on the matter broke down late in 1989. In 1989, Iraq accused Kuwait of using directional drilling to steal oil from Iraq’s part of the Rumaila oil field and demanded compensation. Kuwait disputed the allegation and refused to pay. Iraq also recognised that successful annexation of Kuwait would have meant Iraq controlled 20 per cent of OPEC production and 25 per cent of world oil reserves. It would have allowed Iraq to clear its debts, and greatly enhance its economic position, its influence in OPEC, and its international importance. 8.2 Invasion Saddam Hussein claimed that Iraq really belonged to Iraq, but it had been stolen away by “Western imperialists”. On 2 August 1990, Iraq invaded Kuwait and was in control of the country after two days of intense fighting. Kuwait was annexed by Iraq. Saddam Hussein assumed that he could take over Kuwait and the response would be confined to complaints. He was wrong. On 5 August, United Nations members applied a trade blockade or embargo on Iraq and Kuwait. This abruptly removed nearly 4.6 million barrels per day of Iraqi and Kuwaiti oil out of the international market. In late-1990, the United States issued Iraq with an ultimatum to leave Kuwait by 15 January 1991 or face war. After Iraq failed to comply, United States and other military forces attacked Iraqi forces in Iraq and Kuwait. Military conflict continued until late-February 1991. Iraq’s military forces were overwhelmed and ejected from Kuwait, but Iraqi troops set fire to oil wells in Kuwait as they retreated.
- Summer '16
- OPEC, Crude oil prices, crude oil, Peak oil, Oil Markets