Chapter 36 Review

Chapter 36 is the last chapter in the book before the Epilogue which brings us right up to the years between 1984 and 1989, predominantly.

At the beginning of the chapter, the year is 1984 and gas prices are fluctuating rather dramatically. The common phrase heard at this time is "How low can it go?" The Prize indicates that "oil power" was the main issue in the political arena, and that this was when everything was being established. High or low gas prices would favor certain countries, and allow them to emerge as leaders in global politics and economy.

Countries such as Saudi Arabia, Libya, Mexico, the Soviet Union and others, as big oil exporters, would stand to benefit from high prices. Oil-importing countries without their own oil resources, like Germany and Japan, were already established economic powers at this time, but they would stand to benefit immensely from low prices. The USA at this point, is the country the world once again is watching as they are still the world's largest consumer of oil, yet they were the second largest producers. Whichever side the US decided to support, then that side was virtually guaranteed "victory".

OPEC was trying to control pricing but outside sources continued to grow. As an organization their quote system was not working particularly well. Efforts to regulate the different members, and dissuade them from doing deals behind the scenes and selling more than their quota, were not extremely effective. OPEC was struggling to find secure footing in the industry, and had lost quite a bit of ground. West Texas Intermediate drove prices to a high in Nov. 1985 of $31.75. A week and a half later, at the end of 1985, Saudi Arabia brought together the other OPEC leaders, and increased production. Prices dropped dramatically from the high of $31.75 to $10 a barrel, and Gulf oil cargoes sold for as little as $6. This is referred to as the Third Oil Shock. Contrary to the previous two, the price of oil decreased as dramatically and quickly as it had spiked in 1973-’74 and ’79-’81.

In 1986, George Bush, then the Vice-President under the Reagan Administration, a long time oil man at this point, traveled to Saudi Arabia to discuss the low prices. He made a public announcement that the low prices were affecting US security. With the Cold War still in effect, and the Iran-Iraq war still raging, Saudi Arabia was very concerned with US security. They looked to the US as a protectorate and stabilizer in the world. The low prices were also starting to take a serious toll on the countries within OPEC. It was decided that a change had to happen; however, no one new how to set prices since there was no control system in place.

Alirio Parra, a Venezuelan OPEC veteran began to do research, and started to devise a way in which oil prices could be regulated, and standardized. He determined that the first step was to reduce production. Then, through his research, he also decided that $18 a barrel was just about right. Anything below that and things wouldn’t work properly. $18 a barrel became his magic number. When oil was predicted to call to around $5 a barrel, $18 looked quite enticing. So, Parra spent May 1986 in Kuwait with OPEC leaders, trying to persuade them that the old $20 a barrel had done more harm than good, for them, and that the $18 was perfect. After many discussions, and meetings, in Dec. 1986, the price of oil stabilized, and was to stay at or around $18 a barrel for the next several years.

The chapter ends with the year 1989 and talks about the end of the Iran/Iraq war, the end of the Cold War, the end of the Reagan Administration, and the beginning of the Bush administration. Earlier in the book, it mentioned that when George Bush was elected president, he said, “’I put it this way. They got a President of the United States that came out of the oil and gas industry that knows it and knows it well.’”