EGEE 120
Oil: International Evolution




We will begin with discussion about OPEC’s golden age, how, for the first time, OPEC unilaterally changed price, the impact of petro-dollar on the Iranian society, as well as the impact of the “OPEC tax” on global economy/recession. Saudi Arabia’s new oil man, Yamani, and the twin pillars strategy of the US will be introduced. The shift from concessions to nationalization in the producing countries will be presented. The adjustments in the consuming nations to the new realities of oil supplies and markets will be discussed.

Continue with how the enormous flow of money, modernization, and liberalization of Iran changed the society and led to social and political tensions that eventually brought down the Shah and helped to usher in a second oil shock with the usual panic, price increases, leapfrogging and scrambling. We will also discuss how the gas lines and the Iran hostage crisis helped to bring down Jimmy Carter despite his many successful accomplishments. We will talk about how the second oil shock was worsened by the long drawn-out Iraq-Iran war.

During the oil price increases, all other outputs that required oil also increased in price. This, as expected, led to inflation, high interest rates, and a world-wide recession that led to declining oil demand. Finally, discuss the greed of OPEC in increasing prices (despite the war), the declining demand, the surge in non-OPEC production, and the great inventory dump that all led eventually to declining prices.

Major Lesson Themes

  • Oil and international politics
  • Big change: Lack of spare capacity in U.S.
  • OPEC gains market power and uses it for political reasons
  • World economy shocked by high oil prices
    • First oil price shock: 1973-74
    • Second shock, 1979-1981
  • Emergence of revolutionary regime in Iran - ushered in state sponsored terrorism funded by oil revenues
  • America once again paralyzed by oil dependency
  • Serious talk of $100 oil
  • The supply shock was seeding its own destruction - expectations vs. reality
  • Second oil price shock occurred in 1979 after the Iranian revolution - set off panic buying
  • Iran-Iraq War in 1980 distorted the oil market into believing a permanent shortage
  • Inventories are very important
  • Markets adjust & can break quickly as expectations change

Learning Outcomes

Students should be able to do the following after completing Lesson 10:

  • explain the shift from surplus to deficit among OPEC from 1972 to 1978;
  • state the impact of the “OPEC Tax” on global economy and the dilemma it posed for the exporting countries;
  • explain cartels, stagflation, and the US twin pillars strategy;
  • outline the shift from concessions to nationalization, the role of companies thereafter, and why the new role was politically more acceptable in the producing countries;
  • explain why energy program adjustments to the new realities were often short-lived;
  • account for why we tend to blame oil companies and the government for price hikes;
  • indicate the adjustments made by the oil companies to the new oil realities;
  • show why price forecasting became a component of government and company strategies;
  • explain why Britain began acting just like OPEC after oil discovery in the North Sea;
  • explain how the flow of money, modernization and liberalization brought down the Shah;
  • account for what triggered the Iranian riots that eventually brought Khomeini to power;
  • justify why US policy toward Iran was in chaos, confusion and turmoil;
  • state the causes of the 2nd oil shock and account for its impact and consequences;
  • explain why the objectives of low priced oil and secure supplies became contradictory;
  • show how the gas lines and the Iran hostage crisis held Jimmy Carter a hostage himself;
  • describe the Yamani edict;
  • explain how rising prices lead to inflation, high interest rates, and global recession;
  • articulate the main reasons behind the Iraq-Iran war.

What is due for Lesson 10?

This lesson will take us one week to complete. Please refer to the Course Syllabus for specific time frames and due dates. Specific directions for the assignment can be found within this lesson.

Lesson 10 Checklist
Activity Location Submitting Your Work
Read The Prize: Chapters 31, 32, 33, & 34 No Submission
Read The Quest: Chapter 8 No Submission
Read Online Lesson 10: OPEC No Submission
Complete Lesson 10 Participation Activity Canvas
Take Lesson 10 Quiz Canvas


Each week an announcement is sent out in which you will have the opportunity to contribute questions about the topics you are learning about in this course. You are encouraged to engage in these discussions. The more we talk about these ideas and share our thoughts, the more we can learn from each other.