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Past oil spikes followed by U.S. recession Add to ...

1. OPEC Embargo, 1973-1974
OPEC's Arab members stopped oil shipments to the United States and other allies of Israel, contributing to a 7.5-per-cent decline in global production. The U.S. economy contracted at an annual rate of 2.5 per cent between the first quarter of 1974 and the first quarter of 1975.

2. Revolution and War, 1978-1981
The Iranian revolution and Iraq's subsequent attack on its neighbour caused price spikes that contributed to two recessions. Iranian production declined the equivalent of 7 per cent of global output between October, 1978, and the Shah's flight to the U.S. in January, 1980, spurring U.S. recession in the first half of 1980. Iran was pumping oil at about half of prerevolutionary levels when Iraq invaded in September, 1980. The combined loss in supply from the two countries amounted to 6 per cent of the global total. The U.S. economy contracted at an annual rate of 1.5 per cent over the 12 months starting in the second quarter of 1981.

3. First Persian Gulf war, 1990-1991
Iraqi production was back at levels of the late 1970's when Saddam Hussein invaded Kuwait in August, 1990. The price of crude oil doubled within a few months as output equivalent to 9 per cent of the global total was lost. Saudi Arabia used its reserves to restore supplies by November. GDP declined at an annual rate of 0.1 per cent over the 12 months starting in the third quarter of 1990.

4. Demand Shock, 1999-2000
Oil prices were around $10 (U.S.) a barrel at the end of 1998, reflecting a lack of demand after the Asian financial crisis of the previous year. OPEC and other big producers such as Mexico and Norway agreed in March, 2009, to cut daily crude supply by 7 per cent to end a glut. The effects of the Asian crisis weren't as severe as anticipated, and demand rallied, forcing the U.S. to pressure Saudi Arabia and other producers to reopen the taps. The 10th U.S. recession since the Second World War began in March, 2001.

5. Supply Shock, 2007-2008
Oil prices surged independent of a major geopolitical event. Instability in Iraq and Nigeria played a role, but crude prices shot to a record of around $147 a barrel in July, 2008, mostly because supply failed to keep pace with the rise of China and other emerging market countries. Chinese demand alone increased by 840,000 barrels a day between 2005 and 2007, yet global production actually tumbled after 2008. GDP declined at a rate of 0.7 per cent between the fourth quarter of 2007 and the fourth quarter of 2008.

Sources: Historical Oil Shocks, James Hamilton; University of California, San Diego; Bloomberg.

Read the full story: Oil price spikes and recession intertwined

Past oil spikes followed by U.S. recession

1. OPEC Embargo, 1973-1974

OPEC's Arab members stopped oil shipments to the United States and other allies of Israel, contributing to a 7.5-per-cent decline in global production. The U.S. economy contracted at an annual rate of 2.5 per cent between the first quarter of 1974 and the first quarter of 1975.

2. Revolution and War, 1978-1981

The Iranian revolution and Iraq's subsequent attack on its neighbour caused price spikes that contributed to two recessions. Iranian production declined the equivalent of 7 per cent of global output between October, 1978, and the Shah's flight to the U.S. in January, 1980, spurring U.S. recession in the first half of 1980. Iran was pumping oil at about half of prerevolutionary levels when Iraq invaded in September, 1980. The combined loss in supply from the two countries amounted to 6 per cent of the global total. The U.S. economy contracted at an annual rate of 1.5 per cent over the 12 months starting in the second quarter of 1981.

3. First Persian Gulf war, 1990-1991

Iraqi production was back at levels of the late 1970's when Saddam Hussein invaded Kuwait in August, 1990. The price of crude oil doubled within a few months as output equivalent to 9 per cent of the global total was lost. Saudi Arabia used its reserves to restore supplies by November. GDP declined at an annual rate of 0.1 per cent over the 12 months starting in the third quarter of 1990.

4. Demand Shock, 1999-2000

Oil prices were around $10 (U.S.) a barrel at the end of 1998, reflecting a lack of demand after the Asian financial crisis of the previous year. OPEC and other big producers such as Mexico and Norway agreed in March, 2009, to cut daily crude supply by 7 per cent to end a glut. The effects of the Asian crisis weren't as severe as anticipated, and demand rallied, forcing the U.S. to pressure Saudi Arabia and other producers to reopen the taps. The 10th U.S. recession since the Second World War began in March, 2001.

5. Supply Shock, 2007-2008

Oil prices surged independent of a major geopolitical event. Instability in Iraq and Nigeria played a role, but crude prices shot to a record of around $147 a barrel in July, 2008, mostly because supply failed to keep pace with the rise of China and other emerging market countries. Chinese demand alone increased by 840,000 barrels a day between 2005 and 2007, yet global production actually tumbled after 2008. GDP declined at a rate of 0.7 per cent between the fourth quarter of 2007 and the fourth quarter of 2008.

Sources: Historical Oil Shocks, James Hamilton; University of California, San Diego; Bloomberg.

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