In oil reserves jumped from nearly 70 billion barrels

In fact, worldwide consumption of oil products had
risen by 50 percent between 1914 and 1918 (Maugeri, 2006, p. 25). The
exploration for oil continued all over the world and it was that time when Mexico
and Venezuela found the black gold.
By the eve of World War II, the United States was still the leader of crude oil
production accounting for more than 60 percent of the global output (Maugeri,
2006, p. 51). But in line with the increased production, the demand for
petroleum products increased rapidly and caused the oil price to increase by 80
percent from 1945 to 1947 (British Petroleum Company BP, n.d.).

?he shortage of oil made leader countries like the
United States, Great Britain and Russia, among others, to continuously look for
concessions for oil abroad even though they did not believe that there was much
of oil to be discovered in the Arab countries or the Persian Gulf.

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In the mid-1940s, it was claimed that the Persian Gulf
had noteworthy oil reserves and the attention was turned to these countries.
This was the beginning of the tremendous oil production in the Middle East and
the start of the golden age of oil. Global proven oil reserves jumped from
nearly 70 billion barrels in 1948 to 667 billion barrels in 1973, where 355
billion barrels was concentrated in the Middle East with Saudi Arabia, Iran, Kuwait,
Iraq and the Arab Emirates as the leaders (Maugeri, 2006, p. 80). During this
period the oil became powerful in terms of politics and strategy.

In 1960, the Organization of Petroleum Exporting
Countries (OPEC) was formed by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela with
a goal of increasing bargaining strength and self-defense.

During the post-war period, the oil supply had
increased significantly and the price of oil was kept relatively low. In 1971,
the president of the United States attempted to control the overvaluation of
the currency by announcing that the U.S. dollar was no longer going to be
linked to the gold standard. The currency experienced devaluation, leading to
economic losses for the Middle East countries as all oil transaction was made
in U.S. dollars. As a result from the Yom Kippur war between the Arab members
of OPEC and Israel, the Arab members of OPEC imposed an oil embargo against
Israel and their allies. The combination of the conversion of the dollar and
the oil embargo is said to be the trigger of the first oil shock in 1973
described in section 2.6.

The oil price continued to increase slowly and the
OPEC countries still controlled the majority of oil production. The United
States tried to implement schemes that were supposed to reduce the dependence
of oil abroad.

The second oil shock started in the end of the 1970s
with the Iranian Islamic revolution which was Iran’s attempt to transform into
a modern, industrialized country. Iran had over the last years played an important
role with regards to oil production. The revolution caused a worldwide panic as
oil production was curtailed and exports were cut. The turbulence spread to
several countries in the Middle East and in 1980 Iraq invaded Iran. The
reduction of production caused the oil price increase with approximately 150
percent and thus creating a second oil shock affecting the world.

The second oil shock was followed by the 1980s oil
glut. Over the last years, oil had been discovered in new areas of the world
such as the field of the Netherlands and the North Sea causing a reduced demand
of oil from non-OPEC countries. In addition to this, the war between Iran and
Iraq continued causing low oil production. The OPEC countries tried to reduce
the production as an attempt to keep up the high oil price, but failed. The oil
price started to decline, and from 1980 to 1986 the price had fallen with more
than 50 percent in nominal terms (BP, n.d.).

In the 1990s the world experienced the first Persian
Gulf War and the East Asian Crisis. However, from 1987 to 1999 oil prices
fluctuated at around a modest $18 per barrel in nominal terms (Maugeri, 2006
p.145). OPEC still continued with several failed attempt to control the oil
price by changing the level of production.

Because of economic growth during the beginning of
2000, the oil price started to increase again with an exception of 2001, when
the United States became a victim of the terrorist attack destroying the New
York’s World Trade Center. More and more countries have transformed into modern
industrialized economies, where oil has become a central factor in the standard
of living. This has strongly increased the demand for oil, which in turn has
caused the oil price to increase significantly. The financial crisis that
started in 2007 caused the oil price to drop in the end of 2008. However,
it has since the beginning of 2009 increased.

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