OIL

Year was 1983, oil was about $40/barrel and economy was stagnant. Ronald Reagan was the President and he was soliciting suggestions from the business community to revitalize the economy in order to insure his re-election. Business leaders he had talked to at the time suggested him to lower the oil prices to help the economy. Against that background, Reagan asked his then VP George Bush Sr. to work out a deal with Saudis to lower the oil prices during one of their weekly lunches. After that conversation, George Bush Sr. made 4 trips to Riyadh in the following 12 months to work out a gentlemen’s agreement with the Saudis. In exchange for national security guarantees from US, Saudis pumped up the production to flood the markets with oil. Oil prices tumbled to $10/barrel just before election and Reagan got re-elected. Unfortunately, at $10/barrel, oil exploration came to a screeching halt in the US. Rig count fell from 1350 to 300 in only a few weeks. Thousands of independent oil companies in US closed doors. Nearly half a million oil field professionals and workers lost their jobs. That event is known today as the great "Oil Bust" in the oil belt states. For the next 20 years, there will be no oil exploration in the US. Oil imports will increase over time from just 26% in the 80s to today's 60%. How those events of the 80s relate to our economy today? First of all, this is the behind-the-scenes story of how oil prices are hovering around $100/barrel nowadays affecting your personal well-being and your money as well as how we have became so dependent on foreign oil. But it also explains some of those untold reasons behind the first Gulf War and why we should pay attention to what is happening in Libya.