An oil boom is a period of large inflow of income as a result of high global oil prices or large oil production in an economy. Generally this short period initially brings economic benefits in terms of increased Gross Domestic Product growth but might later lead to a resource curse.
For decades the Middle East has been supplying a big part of the oil consumed around the world. Much of the economic development and wealth of these countries is own to generous income coming from oil exportation. Saudi Arabia has led the production for decades. Other nations of the region have also become large producers: Iran, Iraq, Kuwait, United Arab Emirates and Qatar are some of them. Although Egypt, Libya and Algeria are geographically in North Africa they are often considered part of the Middle East when it comes to oil.
Oil Boom in 1970 In Middle East :
Oil continues to be an important energy source despite the fact that it’s non-renewable and has negative environmental effects. The history of oil started in the United States in the mid-19th century. It was initially a product for lighting lamps, but its energetic potential was soon discovered. The United States dominated the early market. When Russia found oil in the Caspian Sea, they soon started to pump it into Europe. The production in the Middle East began in Iran called Persia back then by the turn of the 20th century. The British were looking for energy sources and found oil there, making Persia their reliable supplier.
After World War I, oil was seen as a strategic resource. The European powers competed for the control over areas where it was suspected to exist. The Great Depression put Saudi Arabia and other nations of the Persian Gulf in trouble and motivated the search for water sources in the desert. Not much water was found but oil was and lots of it. American and European companies acquired concessions to exploit this resource. After World War II, the American economic boom and the world recovery from the war pushed the demand, increasing exploration and production in the Middle East. Iran started the process of nationalization of oil production in the 1950s, meaning the local government assumed control over oil resources. Eventually, most nations did the same, and foreign companies lost the hegemony and had to adapt to the rules of the different governments. However, profits were still high so they carried on, often partnered with newly-established local companies. America was the largest exporter until the 1950s, when Saudi Arabia took the lead. The Organization of Petroleum Exporting Countries, OPEC, was founded in 1960 by Venezuela, Saudi Arabia, Iran, Iraq, and Kuwait. Today, 14 countries are members. The goal was to unify local policies for keeping market shares stable.
For the Middle East, the OPEC was also an opportunity to ally with the experienced South American producer and reduce the dependence on European and North American companies. The oil boom of the 1970s made the holiday possible. As the average price of crude oil rose from less than $2.80 a barrel in 1972 to more than $34 in 1981, the aggregate annual merchandise export earnings of the GCC (Gulf cooperation Council)states soared from less than $10 billion to more than $163 billion. Although imports rose dramatically as well–from about $3.5 billion in 1972 to more than $52 billion in 1982–the group managed to record a sizable current account surplus exceeding $66 billion in 1982. The holiday from economics was characterized by, among other syndromes, the lack of binding budgetary constraints, which reduced and sometimes even eliminated the need to set spending priorities and allocate scarce economic resources. Furthermore, the financial pie was so large that even with a highly skewed income distribution all sectors of society saw some measure of improvement in their standard of living. Unemployment was unimaginable as governments showed a seemingly infinite capacity to hire both citizens and foreigners in public jobs. These economic circumstances led the way to a parallel escape from politics, in which the ruling elites rarely faced the need to share power, renew their legitimacy and credibility, or tolerate any meaningful public debate over major economic, social, or political issues such as oil and budgetary policy. The resulting system had neither taxation nor representation. These symptoms were mild in Oman, more serious in Qatar and Bahrain, and severe in Saudi Arabia, Kuwait, and the UAE.
- Boyle, Patrick C., “The Derrick’s Hand-Book of Petroleum, Vol. II”, Oil City, PA, the Derrick Publishing Company, 1900.
- Cone, Andrew and Johns, Walter R., “Petrolia”, New York, NY, D. Appleton and Company, 1870.