OIL IN THE 1980'S: AN ECONOMIC AND POLITICAL ANALYSIS

In the 1970's, the price of internationally traded oil increased by 1700 percent in nominal terms, after a decline in the 1950's and a relative stability in the 1960's. The 1970 oil price breakthrough of Libya, the 400 percent oil price increases in 1973, and the 100 percent oil price increases in 1979 were the three major events which took place in the oil market during the 1970's. In all three cases, a sequence of political events initially took place which created the appropriate economic environment for the aforementioned oil price increases. These developments in oil prices could not have been predicted on pure economic grounds because politics are not being taken into account in pure economic analysis.;Composite supply and demand curves are developed for the oil of the Organisation of Petroleum Exporting Countries (OPEC). The composite supply curve of OPEC oil is derived from the supply functions of individual OPEC countries. The social, economic, and political conditions prevailing in individual OPEC countries are taken into account in determining the oil supply functions of individual OPEC countries. The composite demand curve is bounded within reasonable limits by taking into account the future worldwide economic growth and the efficiency in energy utilisation.;The OPEC countries are divided into four different subgroups according to the geophysical characteristics of their oil reserves, and to the economic and political conditions prevailing in each OPEC country. An OPEC country is expected to follow a similar oil policy with the OPEC countries belonging to the same subgroup, and different oil policy from the OPEC countries belonging to the other subgroups. The final OPEC oil policy emerges as a compromise among the different policies of the four subgroups.;Oil market developments during the 1980's will depend on the relative bargaining power of the aforementioned four subgroups, which in turn will depend upon the installed oil productive capacity, the economic growth rate, and the political beliefs of individual OPEC countries, as well as the demand for OPEC oil.;This dissertation provides a new framework of analysis of the oil market which takes into account and assesses both the political and economic issues relevant to the world oil market in the 1980's.;This dissertation concludes that if during the 1980's the oil importing countries utilise energy more efficiently and/or utilise more coal--by removing the institutional constraints to its utilisation--such actions will not necessarily lead to a decline in oil prices during the 1980's. However, such action is expected to decrease the probability of oil price increases during the 1980's.