Impact
The 1986 oil price collapse benefited oil-consuming countries such as the United States, Japan, Europe, and Third World nations, but represented a serious loss in revenue for oil-producing countries in northern Europe, the Soviet Union, and OPEC.
In Canada responded to high energy prices in the 1970s with the National Energy Program (NEP) in 1980. This program was in place until 1985 and largely blamed for the collapse of the oil industry in the 1980s, leading to western alienation and the creation of the and Western Separatist Movement.
In 1981, before the brunt of the glut, Time Magazine wrote that in general, "A glut of crude causes tighter development budgets" in some oil-exporting nations. In a handful of heavily populated impoverished countries whose economies were largely dependent on oil production — including Mexico, Nigeria, Algeria, and Libya — government and business leaders failed to prepare for a market reversal.
With the drop in oil prices, OPEC lost its unity. Oil exporters such as Mexico, Nigeria, and Venezuela, whose economies had expanded in the 1970s, were plunged into near-bankruptcy. Even Saudi Arabian economic power was significantly weakened.
Iraq had fought a long and costly war against Iran, and had particularly weak revenues. It was upset by Kuwait contributing to the glut and allegedly pumping oil from the Rumaila field below their common border. Iraq invaded Kuwait territory in 1990, planning to increase reserves and revenues and cancel the debt, resulting in the first Gulf War.
The USSR had become a major oil producer before the glut. The drop of oil prices contributed to the nation's final collapse.
In the US, domestic exploration declined dramatically, and the number of active drilling rigs was nearly halved in 1982." Oil producers held back on the search for new oilfields for fear of losing on their investments. In May 2007, companies like ExxonMobil were not making nearly the investment in finding new oil today that they did in 1981. Cities that had experienced tremendous growth when oil prices were high, most notably Houston and New Orleans, endured severe local recessions as prices collapsed.
Read more about this topic: 1980s Oil Glut
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