Oil and the Gulf War
Questions:
Read David R. Henderson's article entitled: "Do We Need to Go to War for Oil?" (While reading this, remember that this was written before the Gulf War actually began.)
- Explain why Henderson suggested that Saddam Hussein "cannot single-handedly cause shortages
and gasoline lines."
- Why does Henderson argue that there would be little impact on world oil production even if Iraq were
able to keep the Kuwaiti oil fields and take over the oil fields of Saudi Arabia?
- Use the theory of cartels to explain why a successful Iraqi invasion of Kuwait and Saudi
Arabia would result in reduced oil production. Would OPEC be more stable in this case?
- Explain why Henderson believes that the price of oil would rise by a relatively large
percentage in the short run if Iraq were to control the oil fields of Kuwait and Saudi Arabia.
- Why would the economic impact of reduced oil production be larger in the short run than in the long run?
