The law of demand and supply highly affects many business operations since the eighteenth century. In relation to this there are various factors that affect the supply and demand of products and services. This paper is dealing with supply and demand of oil in United States of America and Saudi Arabia. This paper looks at this topic in the nineteen seventies and the current situation in these two countries. It also shows how politics affects supply and demand of products especially oil.A look at early seventies shows that there was oil crisis existed in United States during the 1970’s. During this period is when OAPEC nations declared that they could not export petroleum to any nation that had supported Israel when it had conflicts with Egypt and Syria.
This was during Yom Kippur War. OAPEC consists of Arab members like Egypt and Syria. During this war, there was trigger of pressure on West because of its support of Israel. It is well known that Syria and Egypt are oil exporting countries though they are not major. During this time of the war, there was imposition of the oil embargo against United States in the year 1973. This is an aspect of politics which really affected the supply of oil in the United States.
This is because this nation supported Israel during the Yom Kippur War. This caused the increase in oil prices in the United States. This caused the demand to decline.Iran at that time was a close ally of United States. This nation was known to be one of the world’s second largest oil exporters. There were issues concerning importation of crude oil by United States which was refined and sold back to them quite expensively. Iran decided to increase the price of its crude oil. This had its impacts on the demand of oil in the United States because it declined drastically.
In the year 1973, there was a political strategy to cut oil production. This was actually part of the Yom Kippur War and its effects on OPEC. These countries planned for an embargo on the shipments to the Western countries. United States as a nation was targeted. This also included Saudi Arabia because of their stand in the Yom Kippur War. These measures were imposed as a boycott of Israel.
The results were that the prices increased. According to the law of demand and supply, higher price results in lower the demand.The result of the above venture was that the price of oil increased basing on the law of supply and demand. According to surveys carried out during this period, oil demand fell when the prices increased. Later on the prices had to dramatically rise so that the demand was reduced to lower and new level of supply. When this move was anticipated, it resulted in the market price of oil in the United States rising significantly. This resulted in high inflation and recessions that really persisted during the seventies until the early 1980s.
This played a big role in elevating oil prices. The effects of the 1973 Arab oil embargo are very comprehensible- that there was increase in price level approximately double the original or the previous price. This resulted to great and massive shortages of oil in the United States especially at the refinery level. This had many effects including global recession that occurred in the year 1974.Due to the embargo, oil companies were forced to make drastic increase on their payments. By the year nineteen seventy four the oil price had quadrupled to twelve dollars for each barrel which had the measurement of 75 m3. Such a dramatic increase in the prices of oil had various effects on nations that were nations that exported this product.
For instance Saudi Arabia as a nation acquired the Aramco control. There followed a period of development plans which meant that this nation had to spend approximately $ 250 billion in this. For instance, in the United States, the retail price of gasoline also rose drastically. An example is clearly seen between the year 1973 and 1974.
The retail price of gasoline rose drastically from 38.5 cents to fifty five point one cents. Within a short period of six weeks the Stock Exchange shares in New York had lost approximately $ 97. When the embargo started the amount of oil imported to the United States from Arab nations also dropped. Initially one point two barrels of 190,000m3 of oil used to be imported within a day but this reduced to 19,000 barrels of 3,000 m3. Research shows that the daily consumption also dropped drastically.
This clearly shows the relationship between demand and supply. In the year 1974 a fuel shortage was reported in the United States.This later on resulted in artificial scarcity after the old oil was withdrawn from the market.
This resulted in gasoline being rationed in this state. Right now in these two nations there are some fluctuations in supply and demand which are caused by politics in relation to the nations that produce oil such as Iraq and Iran. This is because of the politics of the Bush government the bad relations with oil producing nations like Iraq and Iran. The results have been that the nations have barred United States from importing oil at normal market price but really selling it at high prices.
Peace talks are currently in progress.Politics can either have positive or negative effects on supply and demand. In case political leaders in nation have good relations with other nations this will lead to increase in supply. This is in relation to nations exporting a product like oil. Political instability in a nation can lead to wars with exporter nations and this can result in sanctions. This means that the supply of product like oil will decline. This according to the law of supply means that the price of the product will automatically increase.
Negative politics in a nation can also lead to the closure of producing industry hence the supply of products will automatically increase. ConclusionThe law of supply and demand states that the higher the higher the price the lower the demand of the product. History of United States during the 1970’s shows fluctuations in supply and demand of oil therein. During this period is when OAPEC nations declared that they could not export petroleum to any nation that had supported Israel when it had conflicts with Egypt and Syria. This was during Yom Kippur War. There was an oil crisis that actually existed in United States during this period. During this time of the war, there was imposition of the oil embargo against United States in the year 1973.
This is an aspect of politics which really affected the supply of oil in the United States. There was low supply of oil which resulted in increase in prices as supported by the law of demand and supply. Currently the nation is still facing some fluctuations in supply and demand of oil due to the political scenario therein. This is especially in line with the relationship with major oil producing nations like Iraq and Iran. Politics therefore can either have negative or positive effects on demand and supply.