Oil Prices Defy War Headlines with Record Plunge

When Operation Desert Storm began in January 1991, oil prices plummeted by over 33% in a single day. This may seem counterintuitive, given that a war was escalating in the Middle East, threatening global oil supplies. However, the market had already priced in the loss of production from Iraq and Kuwait, which had invaded each other on August 2, 1990.

At its peak, the combined output of Iraq and Kuwait dropped by around 4.3 million barrels per day. But as Saudi Arabia increased its production to replace almost two-thirds of this lost supply, the market's fear of a wider shortage began to dissipate.

The International Energy Agency activated a coordinated plan on January 17, 1991, to release an additional 2.5 million barrels per day from government stocks and other measures. This further reduced concerns about a global oil shortage.