An Economic Analysis of Aspects of Petroleum and Military Security in the Persian Gulf

Geologic estimates of remaining global petroleum resources place about 50% in the Persian Gulf. Production costs are estimated at $5 per barrel there and $15 per barrel in the North Sea and Alaska. According to mathematical results derived from depletion theory, the present value of economic rent from oil is on the order of $20 trillion. This article uses game theory to explain the $15–$20 per barrel price band that existed from 1986 to 1999. New economic forces have displaced this previously stable pattern; a new price range of $23–$30 is emerging. International trade in petroleum and conventional weapons are analyzed with econometric methods; the occurrence of nuclear weapons capability in the Persian Gulf region is explored.