There is much debate over what constitutes the largest bubble in history, whether it's the Tulip Mania in the Netherlands in 1637, the 2008 housing crisis in America, or even the rise of Bitcoin.
However, according to many, the biggest bubble in history occurred in Kuwait in 1982.
It was the climate market bubble.
The climate market bubble, a catastrophic collapse largely unknown globally. At that time, Kuwait's population was 1.5 million and its stock market ranked third globally in size, behind the American and Japanese markets.
The size of the climate market reached $266 billion at its peak.
On February 22, 1938, oil was discovered in Kuwait. Today, they control 104 billion barrels of oil, equivalent to 7% of the world's oil reserves.
Oil exports began to rise in the 1960s from 1.75 million barrels to over 3 million barrels in 1972, contributing to the economic prosperity and income levels in Kuwait.
In 1977, the Kuwaiti government opened the Kuwait Stock Exchange, initially catering to the wealthy and financially affluent. The number of listed companies was limited due to stringent requirements.
Subsequently, the Climate Market was established in 1978, allowing trading of all companies, including non-Kuwaiti firms, with lenient conditions and minimal regulatory oversight.
After the 1979 revolution in Iran, the Climate Market began to attract individuals due to the rise in its stocks. It also started to overshadow the main Kuwaiti market, the Kuwait Stock Exchange, because of the ease of trading it offered, leading to an increase in the number of investors and speculators entering the Climate Market.
The primary cause of the Climate Market's growth was a previous Kuwaiti law that allowed investors to purchase an unlimited number of shares using post-dated checks, regardless of the individual's wealth or real assets.
Due to this loophole, investors had unlimited margin to purchase stocks. The loophole stemmed from a low occurrence of defaults or loan repayment failures in Kuwait in the past.
The post-dated checks loophole gave investors high confidence and a sense of security, as the government previously intervened to rescue the market from collapses by purchasing stocks.
Initially in the Climate Market, investors always paid their post-dated checks on time due to locking in profits before the check's due date.
This confidence in the market, coupled with the abnormally high market growth and the ease of obtaining post-dated checks for stock purchases, ensured guaranteed profits without concerns about high stock prices.
In an incident illustrating the extent of the catastrophe, a former passport officer in the 1920s borrowed $14 billion due to the check loophole.
There were 54 listed companies in the Climate Market. The rate of increase in the first year was 63%, with some stocks rising by more than 15 times (1500%) within weeks.
One of the companies that saw an astronomical rise was Gulf Medical, previously a failed hotel company that transformed into a medical firm. On its IPO day, the subscription was oversubscribed by 2600%, more than 26 times.
Of course, such frenzy would have been impossible in the Kuwait Stock Exchange due to stringent regulations.
However, laxity in the Climate Market led to the emergence of shell companies without any profits.
In the spring of 1982, the number of post-dated checks reached 29,000, totaling $94 billion.
In the summer of 1982, rumors began circulating that many companies were fraudulent, with some not even worth a single Kuwait dinar. Despite this, stock prices continued to rise dramatically. At its peak, the market cap reached $5 billion and skyrocketed to over $100 billion, making it the third largest stock market in the world.
After attempting to cash post-dated checks prematurely, which were inevitably without funds, investor suspicions started to rise. At that point, the Minister of Finance, Mr. Abdulatif Yousef Al-Hamad, announced that the state would not intervene to rescue the market. Subsequently, the collapse began.
Of course, the government closed the market in November 1984 and rebuilt it along with the stock exchange under the name 'Kuwait Stock Exchange.' Many still consider the 'Souk Al-Manakh' bubble one of the largest in financial market history, despite it being a globally unknown disaster.