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An Energy Crisis is any great shortfall (or price rise) in the supply of energy to an economy. It usually refers to the shortage of oil, electricity or other natural resources. The crisis often has effects on the rest of the economy, many recessions are precipitated by an energy crisis of some form. In particular, the production costs of electricity rise, which raises manufacturing costs. From a consumer side, the price of petrol (gasoline) for cars and other vehicles rises, leading to reduced consumer confidence and spending.1 Economics
The price in a market economy of energy (oil, gas, electricity) is driven by the fundamental principles of supply and demand which can cause sudden changes in the price of energy if either supply or demand changes. However in some cases an energy crisis is brought on by a failure of the market to adjust prices in response to shortages. In other cases, the crisis might be caused by a lack of a free market. Some economists have argued that the 1973 energy crisis was exacerbated by price controls.
1.1 Oil supply
Oil supply is largely controlled by the national oil companies of nations with significant reserves of cheap oil, including the UAE, Saudi Arabia, Venezuela, Norway and Kuwait. Many of these countries have formed a cartel known as OPEC (Organization of Petroleum Exporting Countries). As OPEC controls a very large proportion of the total global oil output, they have a strong leverage on the global oil prices. If OPEC decides to reduce the output quotas of its member countries, this will tend to drive up the price of oil as the supply diminishes. Likewise, OPEC can step-up oil production to increase supplies and drive down the price. The politics that lead OPEC to perform such actions deserve an article in their own right.
There are however limits on the actions of OPEC. If OPEC raises the price of oil too high, demand decreases and production of oil from less productive fields or unconventional sources such as tar sandsTar sands also referred to as oil sand or bituminous sand is a combination of clay, sand, water, and bitumen. Tar sands are mined for the oil rich bitumen which is refined into oil. Conventional oil is extracted by drilling traditional wells into the grou become profitable. In addition, the economies of oil exporting nations are dependent on oil and efforts to restrict the supply of oil would have an adverse effect on the economies of oil producers.
1.2 Oil demand
As a proportion of the total, by far the greatest demand for oil and other petroleum products comes from the commercial sector which uses oil for heating and transportation. Oil demand is also seasonably variable as the countries of the Northern hemisphere, who dominate global oil consumption, consume more oil in the winter for home heating. In fact, the United States alone represents nearly 60% of global oil demands and a particularly cold winter in North America can strongly affect global prices.
2 Historical Crises
- 1973 energy crisis - Cause: an OPEC oil export embargo by many of the major ArabThere are three factors which may assist to varying degrees in determining whether someone is considered Arab or not: Political: whether they live in a country which is a member of the Arab League (or, more vaguely, the Arab World); this definition covers oil-producing states, in response to western support of IsraelThis article discusses the State of Israel. For other meanings of Israel see Israel (disambiguation). The State of Israel Medinat Yisrael in Hebrew, Daulat Israil in Arabic) is a country in the Middle East on the eastern edge of the Mediterranean Sea.
- 1979 energy crisisThe 1979 (or second energy crisis occurred in the wake of the Iranian Revolution. In the wake of protests, the Shah of Iran fled his country in early 1979 allowing Ayatollah Khomeini to gain control. The protests shattered the Iranian oil sector. While th - Cause: the Iranian revolutionAncient history The ancient nation of Iran was historically known to the West as Persia until March 21, 1935 (see also History of Persia, History of Levant). Once a major empire in its own right, it has been overrun frequently and has had its territory al
- 1990 energy crisisThe 1990 (or third energy crisis was the mildest and most brief of them all. It lasted only six months and occurred as a result of the Gulf War. As Saddam Hussein retreated the oil fields of Kuwait were set on fire causing damage that reduced the oil outp - Cause: the Gulf WarSee also: 2003 invasion of Iraq. The Persian Gulf War was a conflict between Iraq and a coalition force of 34 nations led by the United States. The war started with the Iraqi invasion of Kuwait in August 1990. The result of the war was a decisive victory
- California electricity crisis - Cause: failed deregulation and business corruption
- 2004 energy crisis - Cause: multiple causes leading to high demand and low supply
