Final answer:
Oil prices returned to lower levels after the sharp increase during the Gulf War due to the resumption of production by OPEC nations prioritizing profits, increased global production, and freer trade post-Cold War, which together helped supply recover and prices to decrease.
Step-by-step explanation:
The sharp increase in oil prices during the first Gulf War was primarily due to geopolitical tensions which disrupted the supply. The Arab members of the Organization of Petroleum Exporting Countries (OPEC) used an oil embargo to express disagreement with U.S. support for Israel, resulting in a shifted supply curve to the left in the U.S. petroleum market, thus reducing oil supply and increasing prices. Once production resumed and geopolitical tensions eased, coupled with the fact that OPEC nations prioritized profit, the supply side recovered which helped in bringing the prices back down. This recovery occurred because OPEC nations, including Saudi Arabia, realized the potential profit from the increased prices and rescinded the embargo. Additionally, oil prices eventually fell back due to increased global production and the promotion of freer trade after the end of the Cold War, making it challenging for OPEC to maintain high prices through production restrictions.