War, Oil Prices and Stock Market

THIS morning, news reported that world oil prices overnight hit new highs for 2007 as the market fretted over rising tensions between the West and major crude producer Iran. Iran, OPEC's second largest producer and the world's fourth-biggest producer of oil, certainly plays a considerable part on the world oil supply.

How far will it go? Will it head to oil crisis again?

Looking back at the history, there were several events that trigger the oil crisis:

1. First Oil Crisis, 1973-4
   Arab countries’ retaliation for US support of Israel in Yom-Kippur war 1973.
   Triggered sharp recession around world.
   1973-4 is second sharpest stock market crash in US history. S&P Composite lost 53% of its real value between Dec. 1972 and Dec. 1974. (Only worse two-year experience was June 1930 to June 1932.)
2. Second Oil Crisis, 1979-80 1979: Iranian revolution, expulsion of the Shah of Iran, Ayatollah, capture of US Embassy hostages in Teheran Nov. 1979. Iran-Iraq war erupts 1980, disrupts oil supplies. US CPI inflation reaches 18%/year in March, 1980. The “great recession”of 1981-82 is the worst recession since Depression of the 1930s.
3. Collapse of OPEC Cartel, 1986
   After suffering bombing by Iraq, Iran demands that Iraq be given the same oil export quota as everyone else.
   Other arguments about the disproportionate share of some OPEC states.
4. Persian Gulf War, 1990-1991
   August 2, 1990, Surprise invasion of Kuwait by Iraq
   UN Security Council deadline for Iraq to withdraw by January 15 1991.
   January 16, 1991 Air bombardment of Iraq and its Kuwaiti positions begins.
   February 24, 1991 Allied ground invasion begins. War is over February 26, 1991.
   Brief interruption of oil supplies mark recession: NBER dates July 1990-March 1991.
5. Oil Price Collapse 1997
   Nov. 1997 OPEC Meeting, the “disaster in Jakarta” involved bitter disputes among OPEC nations about market share. Fuming about widespread cheating in limiting exports to quotas. Asian financial crisis dropped demand for oil
6. Oil Price Spike 1999
   OPEC resolve to stop cheating left supplies shorter than they expected
   Erroneous data led them to underestimate how fast inventories were dropping.
   Backwardation in oil futures market (futures price below spot price) began in January 1999. OPEC Increased quotas
7. Second Gulf War Oil Spike
   In anticipation of war, oil rises to nearly $36 per barrel February, 2003
   US invaded Iraq, March 19, 2003. Symbolic end of war: after capture of Baghdad, crowd topples Hussein stature April 8, 2003.
   Oil falls to $28 per barrel by April, 2003
8. Next: US- Iran War???

War! is good for nothing, especially if it caused by some nations arogancy!