Relationship between politics and oil

The relationship between politics and oil is explained by the impact that this product has on the modern economy and life of countries. It is a strategic asset for industrial development, innumerable products are manufactured from petroleum as a raw material, and also for transportation. Much of the world would stop without oil.

Oil has a leading role in international trade. Means that the behavior of the oil market and variations in prices have an important influence on the world economy. While some countries benefit from immense wealth, others may fall into economic instability and even ruin.

In the affected countries the consequences on the economy cause problems, discontent and demand for solutions from the population. The effects of an economic problem are felt in the social and political realm.

For their part, the most benefited countries set the objective of at least keeping the market stable. They try to influence to generate more wealth, ensure that the flow of oil does not stop, and achieve positions of power in the international market.

In both scenarios governments do not remain indifferent, they seek to intervene and they do so using the tools of politics.

The relationship between politics and oil is evident when crises occur in the countries with the largest reserves in the world. Countries in the Middle East, Africa and South America face institutional and political weakness, which inevitably affects the oil market.

Politics and oil in history

Politics and oil are closely linked, as human history from the 20th century shows.

Has been political events that have caused a crisis in the oil market, and there has been attempts to use oil as a political weapon. Oil has also caused conflicts between countries in the struggle to control it.

A historical account gives an account of the relationship between politics and oil:

  • World War I (1914 – 1918) evidenced the importance of oil for national defense, to mobilize tanks, trucks and warships. Taking control or securing their own sources of supply became a strategic priority for the countries.
  • At the end of the World War II (1945) the relationship between politics and oil became even more apparent. The winning countries were clear that oil was key to winning the war.
  • The Suez Canal Crisis (1956) changed the balance of power over oil. The producing nations of the Middle East became aware of the dependence on oil that Western countries had. That gave them the power to exert more influence over the market and negotiate higher profits.
  • In the first world oil crisis (1973) there was a shortage and a high increase in the price of the product. It was caused by claim of Arab producers to use oil as a weapon to influence political affairs. The Arab Organization of the Petroleum Exporting Countries applied an embargo against the United States and other countries that supported Israel in the Yom Kippur War. The United States did not change its position in favor of Israel, so the attempt to use oil as a political weapon can be said to have failed.
  • The 1979 oil crisis It came about as a consequence of the Iranian revolution and the Iran – Iraq war. The price doubled in three years.
  • The Gulf War (1990) It showed that Western countries were still quite dependent on oil produced in the Middle East. Iraq and Kuwait they kept a struggle for territory and control of oil wells. The military intervention of the United States and its allies did not wait to ensure the supply.
  • In the 2008 oil crisis the price fell sharply in just seven months, from 154 to 47 dollars per barrel. This debacle was caused by the global economic recession.
  • The fall in the price of period 2014 – 2015 it was caused by several factors. Among them, the slowdown in China’s economic growth, falling demand in Europe and the increase in production by the United States. In turn, Middle Eastern nations waged a trade war against European producing countries, the United States, and Russia. They did not drop their production despite the drop in demand due to the economic recession.

Currently, the market remains down due to the trade war between the United States and China. Another factor of influence is the increase in oil reserves in the United States, the world’s leading producer and consumer.

Role of OPEC

The foundation of the Organization of the Petroleum Exporting Countries (OPEC) in 1960 the world geopolitical balance changed drastically. Many of the major producers joined in this cartel to regulate the price through the control of supply (production). This grouping allows countries to control their production and export, obtaining profitable income even though they produce less oil.

Especially in the seventies of the last century, OPEC decisions had a great impact on the oil market. This influence demonstrated the strong link between politics and oil.

The influence of OPEC has declined in the last decade. One of the causes of this decline is the expansion of the fracking industry in the United States.

The fracking or hydraulic fracturing It is a technique to increase the extraction of oil and gas from the ground. The growth of this way of exploiting oil has allowed the United States to become the world’s leading producer. Being also one of the main powers on the planet, US political influence has important effects on the oil market.

Political decisions about the search for alternative sources of energy, could also have important consequences in the oil market. The use of solar and wind energy could make countries less and less dependent on oil in the future.

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