Iraqi Invasion of Kuwait and Ensuing Economic Effects
On August 6, 1990, The Republic of Iraq invaded the State of Kuwait, leading to a 7-month occupation of Kuwait and an eventual U.S.-led military intervention. While Iraq officially claimed Kuwait was stealing its oil via slant drilling, its true motives are more complicated and less clear. At the time of the invasion, Iraq owed Kuwait $14 billion of outstanding debt that Kuwait had loaned it during the Iraq-Iran war. In addition, Iraq felt Kuwait was overproducing oil, lowering prices and hurting Iraqi oil profits in a time of financial stress.
In the buildup to the invasion, Iraq and Kuwait had been producing 4.3 million barrels (680,000 m3) of oil a day. This potential loss, coupled with threats to Saudi Arabian oil production, led to a rise in prices from $21 per barrel at the end of July to $28 per barrel on August 6. On the heels of the invasion, prices rose to a peak of $46 per barrel in mid-October.
The United States’ rapid intervention and subsequent military success helped to mitigate the potential risk to future oil supplies, thereby calming the market and restoring confidence. After only three quarters, or 9 months, the spike had subsided.
Read more about this topic: 1990 Oil Price Shock
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