Introduction to the fuel market

Fuel is the most important commodity in our daily lives and it is one of the main inputs in the economic sectors such as transport, construction and so on. If war occurs in Country A, which is the largest oil producing country in the world, the fuel supply will be disrupted and the economic problems will exist in countries around the world. Let us have a look into a real example of this with the history in world oil market: In 1979 and 1980, events in Iran and Iraq led to round of crude oil price increases (Williams, 2009). It resulted in the loss of 2 to 2.5 million barrels per day of oil production between November 1978 and June 1979 in Iran. At one point, production almost stopped the progress.
The Iranian uprising was the immediate cause of what would become the highest price in World War Two. However, its impact on prices would have been limited and of relatively short duration had it not been for subsequent events. Shortly after the revolution, production was up to 4 million barrels per day.
In September 1980, Iran already weakened by the revolution invaded by Iraq. By November, the combined production of both countries was only a million barrels per day and 6.5 million barrels per day less than a year before. Consequently worldwide crude oil production was 10 percent lower than in 1979. The combination of the Iranian revolution and the Iraq-Iran War cause crude oil prices to more than double increasing from $14 in 1978 to $35 per barrel in 1981. The oil price rose to $20.45.
In 1985, the price of oil (Saudi Arabian Light) was $27.53 per barrel (yearly average) (Hance, 2010). The price of oil during this period was falling, in which in 1986, the Saudi’s dumped the swing producer role because they had the largest reserves of oil and capacity utilization to stabilize the price of oil when there was a shortage in the world