Second oil crisis - SpeedyLook encyclopedia

The second Oil crisis occurred in 1979. Under the combined effects of the Iranian Revolution and War Iran-Iraq, the oil price is multiplied by 2,7 between the semi-1978 and 1981 and is carried on still unequalled levels (with the autumn 2005) .

Chronology, unfolding and consequences

The September 8th 1978 take place with Teheran riots very violently repressed, which are known under the name of black Friday. It is the beginning of the active period of the Iranian revolution, which will be completed by the escape of the Shah the January 16th 1979, and it is thus also the beginning of the second oil crisis .

The September 22nd 1980 begins the Guerre Iran-Iraq. The price of the Baril of Pétrole reaches 39 dollars is, by taking account of the Inflation, the equivalent of 92,50 dollars of September 2005.

At that time, the stop of Iranian exports causes almost instantaneously the advertisement of new price increases official, first of all moderate. With all these upheavals, the distribution chains of oil are completely disorganized on a worldwide scale.

In this new context:

the Japanese are private on the one hand appreciable their traditional sources of supply;
after two years of relative abundance and quasi stability of price, the level of stocks fell everywhere very low (thus including stocks from reserve: to see higher “Trade of oil and the oil products”),

A psychosis seizes the consumer countries the whole world and each one tries at “any price” to reconstitute its stocks. Certain governments fix quotas for consumption and others, like the United States, allocate import subsidies while the “traders” benefit from the situation to play the rise on the markets “ Spot ”, this in spite of the increase in the Saoudi production and the recovery partial of crude oil exports Iranian.

In Rotterdam, the prices of the end products flame, passing enters at the end of October 1978 and at the end of June 1979 of:

200 to 400 $ /tm for high-grade petrol;
130 to 380 $/tm for the gas oil;
70 to 140 $/tm for ordinary fuel.

The price “spot” of the crudes follows a rise even more erratic and disordered. Indeed the price of the Leger Arab who is of less than 13 $/bbl (bbl = barrel in summary) in September 1978 reaches 35 $/bbl in May 1979 and will culminate with more than 40 $/bbl to the autumn of the same year.

In front of this panic of the prices “spot” on all the markets of the whole world, the official prices “ ” pack in their turn. It became a “ascending spiral” of price increases without end. The rises of the “prices spot” which, in theory are “ reversible ” involve rises which are “ irreversible ” these, of the “official prices”, from which new rises in “price spot develop” and so on.

Thus the “official price” of the Leger Arab will be found, after all these adventures, with 26 $/bbl with the beginning of the year 1980 and with 32 $/bbl after the opening of the hostilities between the Iran and the Iraq on November 1st of the same year.

The tension of the market and the upheaval of the practices do not result only in one considerable rise in the price of the crudes, but destroy also the “ normal hierarchy ” in the scale of price based on the intrinsic quality of each crude.

Under the pressure of the producer countries most intransigent, there was an abnormal stretching in the scale of oil price, no longer according to their qualities but according to their origins. After the meeting of OPEC in Bali in December 1980, the difference between the official price of the Leger Arab (gross of reference, in English one says marker crude ) and that of the “Saharan Mixture” passes to 8 $/bbl is 5 to 6 times its level of December 1978 (1,40 $/bbl).

For the producer countries greediest, it is necessary to also add that those require, moreover, one certain number of various “premiums” which can represent up to 3 $/bbl to add at the official price.

In this context, the scale of price does not have any more any economic direction and thus does not have any relationship with that of true valorizations based on quality. It results from it that the results of the companies of refining depend largely on their sources of supply.

In front of this dearness, the consumer countries first of all seek other energy source and energy saving then, which involves a very marked deceleration of the consumption of the black gold. This deceleration of consumption on behalf of the industrialized countries as from 1980 was fatally to involve a reversal of the oil economic situation, which became very clear as from spring 1981.

This reversal clarifies the abnormal character of the “ new scale of price ” established after the conference of OPEC at Bali. The decline of worldwide consumption affected the most expensive crudes firstly, i.e. the crudes coming from the producer countries most intransigent and greediest. Thus the “various premiums” instituted by these countries start to disappear.

In June 1981, the producers of the North Sea lowered their prices of 3 $/bbl. Then the successive failure of two conferences held in Geneva, by the countries of OPEC, in May then in August 1981, to try to return to a “ reunified scale ” of price did not prevent certain countries like Mexico and Nigeria, to carry out in their turn, significant price drops in order to realign their prices on the crude of reference which is the Leger Arab.

Finally, following two new meetings, one in Geneva at the end of October 1981, and the other at the beginning of December of the same year in Abu Dhabi, the countries of OPEC, proceeded, in spite of the reserve of some, with the resequencing awaited, of the normal scale of price. Centered on the new standard price of 34 $/bbl of the Leger Arab, the new grid of differentials of price between this crude and other crudes tighten themselves and contract in a very significant way.

Thus at January 1st 1982, the price difference between the Leger Arab and the “Saharan Mixture” (of the Hassi Messaoud + condensate of Hassi R' Mel) is descended from 8 to 3 $/bbl. The difference between crudes BTS of type the Libyan or Saharan and crudes HTS of the Safaniya type passed from 9 to 6 $/bbl.

These new differentials of price definitively put a term at the considerable and erratic distortion imposed by the intransigent and greedy countries. Thus the advantages of certain sources of supply to the detriments of other sources finish.

Today, with the proper perspective, one sees that this oil crisis has considerable consequences, not only for the industrialized countries, but also for the countries in the process of development which do not have clean energy resources. It is noted indeed that:

for the industrialized countries:

an increase in the cost of the energy which obliges them to invest prematurely in certain alternative energies;
a setting out of night light of the highly profitable investments in other branches of industry;
a more or less deflationary and protectionist policy, each one for its account, in order to limit and counterbalance the imbalance of their balance of payments;

for the countries in the process of development:

with the natural handicaps which are already very difficult to cross them, is added the absence of cheap energy resource.

All these facts involve a “ total desoptimisation ” of the economy on a world level for long years and slow down well it beyond what would have, in any assumption, required a far-sighted management of the energy resources of planet.

One also observes another phenomenon due to the new distribution of income between the producer countries and the consumer countries. With this new distribution, the producer countries are given a secure income, where their Exportation S generates considerable receipts. This financial manna is partly injected into their local economy in the form of investments or redistributed more or less with their nationals. But a great part of this lately acquired capital is misused. For a country like the Saudi Arabia for example, the receipts are such as the persons in charge “ placed high ” can invest and buy in Occident whole pieces of the industry of tourism, finance and heavy industry.

See too

External bonds

History of the course of oil

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