Global oil prices escalated from less than US $2 per barrel in 1972 to $38 per barrel in 1980, and over $100 per barrel today. What has brought about this escalation in price? What is expected to happen to oil prices in the mid- to long term? And what will be the impact on the MENA region?

To explain the oil price developments that have occurred over the past four decades, this chapter will examine the forces responsible for past price escalations. Estimates for oil price developments over the coming 25 years are based on the best available projections for global economic growth, oil consumption and production trends.

Many institutions such as the International Energy Agency (IEA), the Organization of the Petroleum Exporting Countries (OPEC) and the Energy Information Administration (EIA) of the US Department of Energy engage in annual estimates of global oil demand and supply over the short, medium and long term. A number of major oil companies and banks also prepare similar annual assessments. Long term assessments of oil markets are based almost exclusively on market fundamentals while short term projections also include the impact of speculation and short term political and geopolitical developments on oil markets. It is of crucial importance to understand the basic assumptions used by analysts in industry, national governments and international institutions.