BLACK GOLD SPARKS ENERGY WOES
Soaring oil prices hit Thailand and changed the direction of the global economy, writes Boonsong Kositchotethana
Over the course of four decades, the global energy scene has been on a topsy-turvy ride that has left its mark on the course of modern history. To put the current state of the energy market into context, it is important to look back to when oil prices were low — as little as US$3 a barrel.
But the two worst energy crises in the world’s history — the 1973 oil price shock and the 1979 energy crisis — changed all that, with oil prices jumping more than tenfold during those six years.
The days of plentiful supplies of cheap energy were seemingly gone following a series of earth-shattering events.
The Yom Kippur War and the Iranian Revolution triggered interruptions in oil exports from the Middle East, a major source of world supplies.
In October 1973, members of the Organization of Arab Petroleum Exporting Countries or Oapec (consisting of the Arab members of Opec plus Egypt and Syria) imposed an oil embargo to retaliate against the United States’ decision to resupply the Israeli military during the Yom Kippur War.
Nevertheless, the promise of a negotiated settlement between Israel and Syria was enough to convince Arab oil producers to lift the embargo in March 1974. By May, Israel agreed to withdraw from the Golan Heights.
Then a second energy crisis erupted in 1979 during the height of the Iranian Revolution when the Shah of Iran, Mohammad Reza Pahlavi, fled his country, allowing Ayatollah Khomeini to gain control.
Massive protests in Iran shattered the Iranian oil sector, and while the new regime would eventually resume oil exports, they were inconsistent and at lower volumes.
Saudi Arabia and other Opec nations increased production to offset the decline from Iran, but widespread panic drove the price far higher than expected.
Before the first oil shock, the oil price depended mostly on the whims of companies known as the “Seven Sisters” — Anglo-Iranian, Socony-Vacuum, Royal Dutch Shell, Gulf, Esso, Texaco and SoCal.
But the 1973 embargo saw Opec gain clout as various countries nationalised their oil holdings, wrestling decision-making power away from the Western oil giants.
After the Iraqi invasion of Iran in 1980, the vast majority of Iran’s oil production was halted while Iraq’s oil production was severely cut as well.
Those events pushed oil prices to peak at over $35 per barrel ($101 in today’s terms) in 1980.
After 1980, however, oil prices started to drop as other countries began to fill production shortfalls from Iran and Iraq.
In the early 1980s, an oil glut ensued due to slowed economic activity in industrialised nations and energy conservation fuelled by sky-high oil prices.
The inflation-adjusted value of oil fell from an average of $78.2 per barrel in 1981 to $26.8 in 1986.
Even though the oil price dipped in the following years, it has never returned to those previous levels.
The oil price began to climb again in the first decade of this century until it hit a historical high of $143 per barrel on June 30, 2008.
There was consensus that the oil price spike in 2005-08 had been spurred by strong energy demand, with consumption rates far above new discoveries during that period.
From 2011-14, crude oil prices were fairly stable, hovering around $100 per barrel. But in late 2014 the oil price fell to below $70, where it remained for most of 2015. In early 2016, crude oil was traded at a low of $27 a barrel, primarily as a result of oversupply and weakened demand caused by a slowing global economy.
The two crises in the 1970s and high oil prices dented world economic growth.
But the impact was not uniformly felt by all economies as oil-rich states in the Middle East significantly benefited from soaring oil prices.
Some other petroleum producers, such as Norway, Mexico, Venezuela and oil-producing areas in the US such as Texas and Alaska, also benefited.
As a net oil importer with a struggling economy, Thailand suffered from a crude oil supply crunch in the 1970s, resulting in queues at petrol stations, informal rationing and black market prices across the kingdom.
The shortage in Thailand was so acute in 1973 that then deputy foreign minister Chatichai Choonhavan was dispatched to Saudi Arabia and other Middle Eastern countries as well as China to essentially beg for crude oil supplies.
The effects of spiralling oil prices on Thai consumers were so great that the government initiated a price subsidy scheme to make energy more affordable, leading to a prolonged period of petroleum price distortions.
It is generally agreed that oil price increases precipitated global recessions in 1973-75, 1980-81, 1990-91, 2001 and 2008-09.
All US crude oil and refined product stocks jumped to 2.08 billion barrels last month, an alltime high. Analysts now believe that the excess oil supply that appeared in late 2014 may continue to prevail, while the steep price increases seen in the past are unlikely to recur.