In the summer of 1990, the world enjoyed a sense of optimism following the end of the Cold War. The East-West confrontation had ended, and communist regimes in Eastern Europe had collapsed. The Berlin Wall had fallen, and the Soviet Union was undergoing profound changes driven by political, economic, and ethnic shifts. Democracy was taking hold in many places, and German reunification was imminent. Japan had emerged as a global financial powerhouse, suggesting that future conflicts would revolve around economic competition rather than military confrontation. Oil, once a focal point of global politics, seemed to have diminished in importance. Environmental concerns persisted, but oil prices were low, benefiting consumers. The world appeared to have ample oil reserves, which had increased from 615 billion barrels in 1985 to 917 billion barrels in 1990. However, most of these reserves were concentrated in the Persian Gulf and Venezuela, raising concerns about the lack of diversified, non-OPEC oil sources.

Despite the seeming stability, caution was warranted. The Persian Gulf held 70% of the world’s oil reserves, making the global oil market vulnerable. U.S. oil production had declined by two million barrels per day from 1986 to 1990, increasing dependence on Persian Gulf oil. The “security margin” between supply and demand was shrinking, making the market more susceptible to disruptions.