Oil Reserves and War

Paper Summary:

This paper discusses the implication that a conflict in the Middle East could lead to restricted supplies, which would increase oil prices. The author states that, in the event of a war with Iraq, the International Energy Agency (IEA) would tap into their strategic reserves and would offset the drop in production likely to be caused by war. The author believes the worst-case scenario is that an involved war could result an aggressive position by the Arab Oil Embargo, which would cause prices to spike exponentially; however, all signals point to a more optimistic result.

From the Paper:

"The IEA's initiative is intended to counter the chance of a disruption in oil supplies. If Iraq and Northern Kuwait stopped producing oil, the projected decrease of 2.5 million barrels per day would certainly impact the world's oil supply. The only other time in history the IEA released reserves was in 1991, with the start of the air campaign for the Gulf War. In 1991, the IEA had announced the release of 2.5 million barrels per day of oil from its strategic reserves. This resulted in a price drop that ultimately fell to $10.56 per barrel."

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