Welcome to GEFRI
Oil Trading in the Gulf Crisis
DO INTERNATIONAL CRISES TEAR THE FABRIC OF TRADE?
Status: First draft
The IB literature has largely ignored international crises, and their effects on the aspects of the global economy on which we focus – trade, FDI, etc. This paper examines the Gulf Crisis of the early 1990s. The invasions of Kuwait by Iraqi forces, followed by the huge military build-up in the Gulf region, and eventual invasion of Kuwait and Iraq by Allied forces was associated with a tremendous spike in oil prices, and recession in OECD and oil-importing developing countries. But did it affect the fabric of international trade?
The paper focuses on trade patterns, especially intermediation and the role of international trade intermediaries (“trading companies”). Trading companies were the first MNEs, and remain important in many countries and markets, yet have received limited attention in the IB literature. This paper exploits a unique transactional database on oil trading before, during, and after the Gulf Crisis, utilizing the crisis as a natural experiment in order to shed light on the role of ITIs in trade.
Crises also provide an opportunity to examine path dependence. Did the end of the crisis and restoration of the status quo ante result in a return to pre-crisis patterns of trade? Or was the fabric of international business torn? Recent IB literature has discussed the role of institutions and path-dependence, but has not examined the phenomenon empirically.