The world has changed so much in the last 30 years that the political and economic landscape of 1980 is almost unrecognizable today. Back then, China had barely begun its economic transformation, the U.S. was locked in an arms race with the Soviet Union and globalization was just a glimmer in economists’ eyes.
But one aspect of that landscape remains familiar today: When energy supply is threatened, today as in 1980, the world turns to Saudi Arabia for help.
In July, Saudi Arabia’s oil production rose to 9.85 million barrels a day, just shy of the previous high of 9.90 million barrels a day the kingdom produced in 1980, according to data from the U.S Energy Information Administration.
The reasons for these twin peaks in output are also similar, despite the 30 year gap between them.
This year, Saudi Arabia has raised production significantly to make up for the loss of almost all oil exports due to the Libyan civil war. In 1980, the kingdom opened its taps wide after the revolution in Iran and subsequent war with Iraq shut down millions of barrels of production there.
In both cases, there was nobody else able to fill the gap and Saudi action prevented a political crisis turning into a severe and prolonged oil price spike.
However, the similarity with past events goes only so far. The oil market in 2012 will be very different to that in 1982.
After the 1980 price spike, oil prices fell into a long slump. A combination of improvements in energy efficiency, consumer reaction to high prices and new production from Alaska, the North Sea and Mexico, led to a 20 year supply surplus. The market for OPEC oil dried up and by 1985 Saudi Arabia was producing just a third of its 1980 peak.
There’s little danger of this history repeating. Outside OPEC countries, oil supply is growing incrementally, but nowhere near the scale of the new wave of 1980s production. In rich countries, oil consumption is still falling for similar reasons to 30 years ago. However, rapid demand growth in the developing world will more than offset this, even if oil prices remain high.
Even after Libyan oil exports are restored, the world will probably need more oil every year from Saudi Arabia. Some analysts are already questioning whether this is possible.
The constancy of Saudi Arabia in its role as global oil supply lynchpin for 30 years has been remarkable. If it can still fulfill that role in another 30 years, it will be a miracle.
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