Energy Related Recessions

There have been several examples of energy-related recessions in the United States. The 1973-74 oil crisis, for example, led to a severe recession in the United States and most of the Western world, specifically in the countries that were dependent on Arab oil. The situation was especially bad after the implementation of a U.S. policy requiring people who drove vehicles with odd-numbered license plates to purchase gasoline on only odd-numbered days of the month and those who drove vehicles with even-numbered plates to purchase gasoline on only even-numbered days. The second oil crisis, in 1979, caused decreased spending and heightened economic insecurity in the United States. During this second crisis many people believed that oil companies artificially created the oil shortage to drive up prices.

Yet another example of a shortage-related economic crisis occurred in 2003, when a massive electrical blackout in North America in August resulted in $6 billion in financial losses. Other factors can also bring on increased energy costs and lead to economic problems. In 2003, for example, crude oil prices in the United States rose to a 29-month high as a result of a cold winter and a strike by Venezuelan oil workers at the end of the previous year. In February 2003 the price of oil was $49 a barrel, almost double the previous February's price. This situation was compounded by a pending war with Iraq; in March 2003, after Iraq's president, Saddam Hussein, failed to cooperate with weapons inspections supervised by the United Nations

(UN), the United States led an invasion of Iraq, contending that Iraq held weapons of mass destruction. The U.S. invasion of Iraq put Iraqi oil production on hold. The economic impact of this stoppage could have impacted the U.S. economy more severely, but Saudi Arabia's minister of petroleum and mineral resources, Ali bin Ibrahim al-Naimi, asserted Saudi Arabia's commitment to stepping up its own oil production to fill the void in Middle Eastern oil exports. Saudi Arabia and other oil-producing countries then increased production to circumvent the shortfall. The remainder of 2003, however, was marked by reduced economic activity in the United States, with a stagnant stock market, especially during the early part of the year.

Another example of the interplay between energy supply and the economy followed Hurricane Katrina's landfall in late August 2005. Reacting to the hurricane-induced damage to the oil rigs in the Gulf of Mexico, many gas stations increased prices by a considerable amount; in most regions of the United States gasoline cost more than three dollars per gallon. By September 1, 2005, many gas stations were actually running out of fuel because consumers, panicked over possible mass U.S. oil shortages, began stocking up on gasoline. As demand increased, so did price; Atlanta, Georgia, reported gasoline sales of nearly six dollars per gallon. However, prices eased as the true extent of the damage to Gulf oil facilities became known. Saudi Arabia, too, stepped up oil production to fill the gap in U.S. supply.

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