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Do Crises Tear the Fabric of Oil Trade?


  • Weiner, Robert

    () (Resources for the Future)


In 1990, Iraq invaded Kuwait, touching off an economic, financial, diplomatic, and military crisis associated with a tremendous spike in oil prices and recession in OECD and oil-importing developing countries. But was the Gulf Crisis a disruption? Did it affect the fabric of oil trade? To examine this question, this paper examines the changing role of international trade intermediaries (ITIs, often referred to as “trading companies”) in the oil market. ITIs connect buyers and sellers, serving as the glue that holds many commodity markets together. Oil trading companies have attracted harsh scrutiny form policymakers as a result of allegations regarding their role in the United Nations’ Iraqi Oil-for-Food Program, but minimal scholarly attention. The paper takes advantage of a unique microdatabase on the Brent market. Produced in the U.K. North Sea, Brent Blend is by far the most widely traded crude oil in the international market. Participants in the Brent market are diverse, with the largest traders falling into two categories. The first comprises “industrial MNEs”—companies active in the business of producing or refining crude oil. The second category comprises financial houses and trading companies. This diversity provides an opportunity to test hypotheses regarding behavioral differences across types of companies and geographic origin, before, during, and after the crisis.

Suggested Citation

  • Weiner, Robert, 2006. "Do Crises Tear the Fabric of Oil Trade?," Discussion Papers dp-06-16, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-06-16

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    References listed on IDEAS

    1. Mike W Peng & Anne Y Ilinitch, 1998. "Export Intermediary Firms: A Note on Export Development Research," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(3), pages 609-620, September.
    2. Levy, Brian, 1982. "World oil marketing in transition," International Organization, Cambridge University Press, vol. 36(01), pages 113-133, December.
    3. Kristin J Forbes, 2002. "How Do Large Depreciations Affect Firm Performance?," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 214-238.
    4. Kenneth A. Froot & Jeremy C. Stein, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1191-1217.
    5. Forbes, Kristin J., 2002. "Cheap labor meets costly capital: the impact of devaluations on commodity firms," Journal of Development Economics, Elsevier, vol. 69(2), pages 335-365, December.
    6. Carlos, Ann M. & Nicholas, Stephen, 1988. "“Giants of an Earlier Capitalism”: The Chartered Trading Companies as Modern Multinationals," Business History Review, Cambridge University Press, vol. 62(03), pages 398-419, September.
    7. Robert J Weiner, 2005. "Speculation in international crises: report from the Gulf," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 36(5), pages 576-587, September.
    8. Carlos, Ann M, 1992. "Principal-Agent Problems in Early Trading Companies: A Tale of Two Firms," American Economic Review, American Economic Association, vol. 82(2), pages 140-145, May.
    9. Harald Trabold, 2002. "Export Intermediation: An Empirical Test of Peng and Ilinitch," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 33(2), pages 327-344, June.
    10. Melick, William R. & Thomas, Charles P., 1997. "Recovering an Asset's Implied PDF from Option Prices: An Application to Crude Oil during the Gulf Crisis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(01), pages 91-115, March.
    11. James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1177-1203, December.
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    Cited by:

    1. Hache, Emmanuel & Lantz, Frédéric, 2013. "Speculative trading and oil price dynamic: A study of the WTI market," Energy Economics, Elsevier, vol. 36(C), pages 334-340.

    More about this item


    oil; trading companies; crisis; Brent; North Sea;

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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