21. Conflicts, Oil Prices, and International Financial Stability
- Author:
- Hossein Askari
- Publication Date:
- 03-2013
- Content Type:
- Journal Article
- Journal:
- Georgetown Journal of International Affairs
- Institution:
- Georgetown Journal of International Affairs
- Abstract:
- Over the last 100 years, crude oil has been priced between $10 and $30 per barrel (adjusted for inflation, in 2010 U.S. dollars), with the exception of two periods: 1973-1983 and 2001-2011.1 These two periods were both marked by conflicts, upheavals, and disruptions in the Middle East. The resulting oil price shocks were dramatic and led to large swings in current account balances, as oil producers rapidly acquired cash for their increasingly valuable resources. Large current account surpluses signify net annual savings in a country's transactions with the rest of the world, and large imbalances put stress on the international financial and banking system. These massive surpluses and corresponding deficits played a leading role in the developing-world debt crisis of the 1980s and may have a contributing factor to the global financial crisis of the late 2000s. In this paper, we begin by taking a brief look at the factors affecting oil prices, a subject that is often the victim of popular misconceptions. Then, we turn to a significant result of higher prices, large swings in current account balances, and potential financial crises. We conclude by proposing a change in U.S. and international policies to contain conflicts, reduce violent swings in oil prices, better manage and recycle the current account surpluses of oil exporters, and reduce the likelihood of recurring and severe financial crises.
- Topic:
- Oil
- Political Geography:
- United States and Middle East