1990 oil price shock

[3] The United States' rapid intervention and subsequent military success helped to mitigate the potential risk to future oil supplies, thereby calming the market and restoring confidence.

After only nine months, the spike had subsided, although the Kuwaiti oil fires set by retreating Iraqi forces were not completely extinguished until November 1991, and it took years for the two countries' combined production to regain its former level.

By raising interest rates and lowering growth expectations, the Fed hoped to slow and eventually reduce inflationary pressures, creating greater price stability.

[3] Despite the potential for inflation, the U.S. Fed and central banks around the globe decided it would not be necessary to raise interest rates to counteract the rise in oil prices.

This decision to refrain from action stemmed from confidence in the future success of Desert Storm to protect major oil-producing facilities in the Middle East and a will to maintain the long-term credibility of economy policy that had been built up during the 1980s.