Economics of War and the Oil Industry: A Look At the Effects of War on Oil Prices
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The goal of this paper is to prove that war causes increased oil prices that in tum cause national recessions. To do so, there is an in depth look at war economics including finance, regulation, taxation, resources, and peacetime preparations. There is also a discussion on the international oil market and how it is run. This includes the history of the industry prior to the formation of OPEC ·until the present day, a look at shifts in control from one group (the international majors) to another (OPEC), how the controls affect the economy, and how the governments behind OPEC affect the industry. This however is all just background, literature information that helps to explain and support the thesis. The empirical section uses thirty years of data for several different variables. The variables that are plotted and correlated are gross domestic product, oil prices, and time. It was found that GDP and oil prices are slightly positively correlated. Hikes in both GDP and oil prices over time occur either during or directly after a major war or conflict in the U.S. or the Middle East. A regression was run using change in oil prices as a function of change in GDP, times of war, and imports of oil into the U.S. by OPEC countries. The R-squared result tells us that the equation is not very good for forecast purposes. One could conclude, however, that war and income do affect oil prices but not to the extent that may have been previously hypothesized.