Protests in the Middle East this month have sparked not only regime change but also concerns about a possible rise in the price of oil. Political unrest in the region has caused oil supply disruption and price hikes before; many Americans recall – and do not want to repeat – the gas shortages and long lines in 1973 spurred by U.S. support for Israel during the Yom Kippur War.
But is the cause for alarm justified? New research by Strauss Center Distinguished Scholar Eugene Gholz, and his colleague Daryl Press, suggests not. By analyzing every major oil disruption since 1973, they show that the related price increases have been short-lived and with little economic impact. When oil supplies run short, it turns out, oil purchasers scramble but market forces kick in to fill the gap.