NCPA - National Center for Policy Analysis

Where Did The Oil Crisis Go?

January 27, 1999

Oil is now selling for about $10 a barrel. Back in the dark days of 1981 it went for about $53. What happened?

  • The current price of $10 a barrel is about what it sold for in real terms in 1972 -- though doomsayers, including President Jimmy Carter, concluded during the '70s that the world was running out of resources, and some said civilization was doomed.
  • By 1985, the era of high oil prices came to an end.
  • Experts conclude that the Organization of Petroleum Exporting Countries (OPEC) made a mistake -- as cartels inevitably do -- and that there is still plenty of oil around.
  • Initially, OPEC got greedy and tried to limit production among members -- but arrangements fell apart as the individual states started cheating.

Saudi Arabia, in particular, suffered from cutbacks in demand and new sources of supply. High oil prices initiated a wave of drilling and exploration -- most evident in the U.S.

Moreover, the new oil-rich states couldn't spend their money fast enough and decided to leave oil in the ground, assuming it would be worth more later.

But that hasn't happened.

Source: Paul Krugman, "The Energy Noncrisis Explained," Fortune, February 1, 1999.


Browse more articles on Economic Issues