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The 1973 oil crisis began on October 17, 1973, when the members of Organization of Arab Petroleum Exporting Countries (OAPEC, consisting of the Arab members of OPEC plus Egypt and Syria) announced, as a result of the ongoing Yom Kippur War, that they would no longer ship oil to nations that had supported Israel in its conflict with Syria and Egypt (the United States, its allies in Western Europe, and Japan). Events 539 BC - King Cyrus The Great of Persia marches into the city of Babylon, releasing the Jews from almost Year 1973 ( MCMLXXIII) was a Common year starting on Monday (link will display full calendar of the 1973 Gregorian calendar. The Organization of Arab Petroleum Exporting Countries or OAPEC is a multi-governmental organization headquartered in Kuwait which coordinates energy policies in Arab The araB gene Promoter is a bacterial promoter activated by e L-arabinose binding The Organization of the Petroleum Exporting Countries ( OPEC) is a Cartel of thirteen countries made up of Algeria, Angola, Ecuador This article is about the country of Egypt For a topic outline on this subject see List of basic Egypt topics. Syria ( سوريّة or) officially the Syrian Arab Republic (Arabic ar الجمهورية العربية السورية The Yom Kippur War, Ramadan War or October War (מלחמת יום הכיפורים transliterated: Milkhemet Yom HaKipurim or מלחמת יום An oil is a substance that is in a viscous Liquid state ( "oily") at ambient temperatures or slightly warmer and is For a topic outline on this subject see List of basic Israel topics. Syria ( سوريّة or) officially the Syrian Arab Republic (Arabic ar الجمهورية العربية السورية This article is about the country of Egypt For a topic outline on this subject see List of basic Egypt topics. The United States of America —commonly referred to as the Western Europe at its most general meaning means 'all the countries in the West of Europe ' For a topic outline on this subject see List of basic Japan topics.

The same time, OPEC members agreed to use their leverage over the world price-setting mechanism for oil in order to raise world oil prices, after the failure of negotiations with the "Seven Sisters" earlier in the month. Petroleum ( L petroleum, from Greek πετρέλαιον, lit The Seven Sisters of the Petroleum industry is a term coined by an Italian entrepreneur Enrico Mattei, that refers to seven oil companies that dominated mid Because of the dependence of the industrialized world on crude oil and the predominant role of OPEC as a global supplier, these price increases were dramatically inflationary to the economies of the targeted countries, while at the same time suppressive of economic activity. The targeted countries responded with a wide variety of new, and mostly permanent, initiatives to contain their further dependency. The United States of America, however, failed to produce any major intitiatives towards reducing its foreign dependency.

Graph of oil prices from 1861-2007, showing a sharp increase in 1973, and again during the 1979 energy crisis. The orange line is adjusted for inflation.
Graph of oil prices from 1861-2007, showing a sharp increase in 1973, and again during the 1979 energy crisis. The 1979 (or second) oil crisis in the United States occurred in the wake of the Iranian Revolution. The orange line is adjusted for inflation. The distinction between real versus nominal value occurs in many fields

Contents

Background

Founding of OPEC

The Organization of the Petroleum Exporting Countries (OPEC) consisted of twelve countries, including Iran, seven Arab countries, plus Indonesia, Nigeria, Angola and Venezuela. For a topic outline on this subject see List of basic Iran topics. The Republic of Indonesia ( (Republik Indonesia is a Country in Southeast Asia. Nigeria, officially named the Federal Republic of Nigeria, is a federal Constitutional republic comprising thirty-six states and one Federal Angola, officially the Republic of Angola (República de Angola Pronounced ʁɛˈpublikɐ dɨ ɐ̃ˈgɔlɐ Repubilika ya Ngola is a country in south-central Venezuela (ˌvɛnəˈzweɪlə) officially the Bolivarian Republic of Venezuela (Spanish República Bolivariana de Venezuela) is a country on the OPEC had been formed on September 14, 1960 at the Baghdad conference. Events 81 - Domitian becomes Emperor of the Roman Empire upon the death of his brother Titus. Year 1960 ( MCMLX) was a Leap year starting on Friday (link will display full calendar of the Gregorian calendar. It was made to protest pressure by major oil companies (mostly owned by U. S. , British, and Dutch nationals) to reduce oil prices and payments to producers. The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located The Netherlands ( Dutch:, ˈnedərlɑnt is the European part of the Kingdom of the Netherlands, which consists of the Netherlands the Netherlands This article is about the price of crude oil see Gasoline usage and pricing for information about derivative motor fuels At first it had operated as an informal bargaining unit for the sale of oil by Third World nations. Third World is a name given to nations that are generally considered to be underdeveloped economically It confined its activities to gaining a larger share of the revenues produced by Western oil companies and greater control over the levels of production. However, in the early 1970s it began to exert its strength.

Yom Kippur War/Ramadan War

On October 6, 1973, Syria and Egypt launched a military attack on Israel starting the Yom Kippur War, also known as the Ramadan War or October War. The Yom Kippur War, Ramadan War or October War (מלחמת יום הכיפורים transliterated: Milkhemet Yom HaKipurim or מלחמת יום [1] The persistence of the Arab-Israeli conflict finally triggered pressure on the West over its support of Israel (in part because of operations such as Operation Nickel Grass). Operation Nickel Grass was an overt Strategic airlift operation conducted by the United States to deliver weapons and supplies to Israel during Egypt and Syria, though not major oil-exporting countries, joined the latter grouping to help articulate its objectives. Syria ( سوريّة or) officially the Syrian Arab Republic (Arabic ar الجمهورية العربية السورية On October 17, 1973, Arab states placed an embargo on oil as punishment for U. S. support for Israel in the Yom Kippur War. [2] During the war the Arab world imposed an oil embargo against the United States, Western Europe, and Japan for their support of Israel. By the early 1970s the great Western oil conglomerates suddenly faced a unified bloc of producers.

The Arab-Israeli conflict triggered a crisis already in the making. The West could not continue to increase its energy use 5% annually, pay low oil prices, yet sell inflation-priced goods to the petroleum producers in the Third World. This was stressed by the Shah of Iran, whose nation was the world's second-largest exporter of oil and the closest ally of the United States in the Middle East at the time. Shah is an Iranian term for a Monarch (leader that has been adopted in many other languages The Middle East is a Subcontinent with no clear boundaries often used as a synonym to Near East, in opposition to Far East. "Of course [the world price of oil] is going to rise," the Shah told the New York Times in 1973. "Certainly! And how. . . ; You [Western nations] increased the price of wheat you sell us by 300%, and the same for sugar and cement. Wheat ( Triticum spp is a worldwide cultivated grass from the Levant area of the Middle East. . . ; You buy our crude oil and sell it back to us, refined as petrochemicals, at a hundred times the price you've paid to us. Petroleum ( L petroleum, from Greek πετρέλαιον, lit Petrochemicals are chemical products made from raw materials of Petroleum or other Hydrocarbon origin . . ; It's only fair that, from now on, you should pay more for oil. Let's say ten times more. "[3]

End of Bretton Woods

On August 15, 1971, the United States pulled out of the Bretton Woods Accord taking the US off the Gold Exchange Standard (whereby only the value of the US dollar had been pegged to the price of gold and all other currencies were pegged to the US dollar), allowing the dollar to "float". Events 778 - The Battle of Roncevaux Pass, at which Roland is killed Year 1971 ( MCMLXXI) was a Common year starting on Friday (link will display full calendar of the 1971 Gregorian calendar. The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states The gold standard is a monetary system in which a region's common media of exchange are paper notes that are normally freely convertible into pre-set fixed quantities of Gold Shortly thereafter, Britain followed, floating the pound sterling. The industrialized nations followed suit with their respective currencies. In anticipation of the fluctuation of currencies as they stabilized against each other, the industrialized nations also increased their reserves (printing money) in amounts far greater than ever before. The result was a depreciation of the value of the US dollar, as well as the other currencies of the world. Currency depreciation is the loss of value of a country's currency with respect to one or more foreign reference currencies typically in a Floating exchange rate system The United States dollar ( sign: $; code: USD) is the unit of Currency of the United States; it has also been Because oil was priced in dollars, this meant that oil producers were receiving less "real" income for the same price. The OPEC cartel issued a joint communique stating that forthwith they would price a barrel of oil against gold. This led to the "Oil Shock" of the mid-seventies. In the years after 1971, OPEC was slow to readjust prices to reflect this depreciation. From 1947-1967 the price of oil in U. S. dollars had risen by less than two percent per year. Until the Oil Shock, the price remained fairly stable versus other currencies and commodities, but suddenly became extremely volatile thereafter. OPEC ministers had not developed the institutional mechanisms to update prices rapidly enough to keep up with changing market conditions, so their real incomes lagged for several years. The large price increases of 1973-74 largely caught up their incomes to Bretton Woods levels in terms of other commodities such as gold. [4]

Arab oil embargo

On October 16, 1973, OPEC cut production of oil and placed an embargo on shipments of crude oil to the West, with the United States and the Netherlands specifically targeted. Events 456 - Magister militum Ricimer defeats the Emperor Avitus at Piacenza and becomes master of the western Year 1973 ( MCMLXXIII) was a Common year starting on Monday (link will display full calendar of the 1973 Gregorian calendar. In international Commerce and politics, an embargo is the prohibition of commerce The Netherlands ( Dutch:, ˈnedərlɑnt is the European part of the Kingdom of the Netherlands, which consists of the Netherlands the Netherlands The Netherlands had supplied arms to Israel and allowed the Americans to use Dutch airfields for supply runs to Israel. Also imposed was a boycott of Israel and price increases. Since oil demand falls little with price rises, prices had to rise dramatically to reduce demand to the new lower level of supply. In Economics and business studies the price elasticity of demand (PED is a measure of the sensitivity of quantity demanded to changes in price Anticipating this, the market price for oil immediately rose substantially. A world financial system already under pressure from the breakdown of the Bretton Woods agreement was set on a path of a series of recessions and high inflation that persisted until the early 1980s, and elevated oil prices persisted until 1986. The United Nations Monetary and Financial Conference, commonly known as Bretton Woods conference, was a gathering of 730 Delegates from all 44 Allied In economics inflation or price inflation is a rise in the general level of prices of goods and services over a period of time

The price of oil during the embargo. The graph is based on the nominal, not real, price of oil, and so overstates prices at the end. However, the effects of the Arab Oil Embargo are clear—it effectively doubled the real price of crude oil at the refinery level, and caused massive shortages in the U.S.
The price of oil during the embargo. The graph is based on the nominal, not real, price of oil, and so overstates prices at the end. The distinction between real versus nominal value occurs in many fields However, the effects of the Arab Oil Embargo are clear—it effectively doubled the real price of crude oil at the refinery level, and caused massive shortages in the U. S.

Over the long term, the oil embargo changed the nature of policy in the West, towards more exploration, towards energy conservation, and towards more restrictive monetary policy, which more aggressively fought inflation. In economics inflation or price inflation is a rise in the general level of prices of goods and services over a period of time

Chronology

Immediate economic impact of the embargo

Gas rationing system is announced in an afternoon newspaper being read at a service station with a sign in the background stating no gas is available in 1974
Gas rationing system is announced in an afternoon newspaper being read at a service station with a sign in the background stating no gas is available in 1974

The effects of the embargo were immediate. OPEC forced the oil companies to increase payments drastically. The price of oil quadrupled by 1974 to nearly US$12 per barrel (75 US$/m³). [6]

This increase in the price of oil had a dramatic effect on oil exporting nations, for the countries of the Middle East who had long been dominated by the industrial powers were seen to have acquired control of a vital commodity. The traditional flow of capital reversed as the oil exporting nations accumulated vast wealth. Some of the income was dispensed in the form of aid to other underdeveloped nations whose economies had been caught between higher prices of oil and lower prices for their own export commodities and raw materials amid shrinking Western demand for their goods. Much was absorbed in massive arms purchases that exacerbated political tensions, particularly in the Middle East.

OPEC-member states in the developing world withheld the prospect of nationalization of the companies' holdings in their countries. Nationalization, also spelled nationalisation, is the act of taking an industry or assets into the Public ownership of a national government Most notably, the Saudis acquired operating control of Aramco, fully nationalizing it in 1980 under the leadership of Ahmed Zaki Yamani. Saudi Aramco, the state-owned national oil company of Saudi Arabia, is the largest oil corporation in the world and the world's largest in terms of proven crude Ahmed Zaki Yamani (أحمد زكي يماني (born June 30, 1930 in Mecca) was Saudi Arabia 's Minister of Oil ( Petroleum As other OPEC nations followed suit, the cartel's income soared. Saudi Arabia, awash with profits, undertook a series of ambitious five-year development plans, of which the most ambitious, begun in 1980, called for the expenditure of $250 billion. Other cartel members also undertook major economic development programs.

Meanwhile, the shock produced chaos in the West. In the United States, the retail price of a gallon of gasoline rose from a national average of 38. 5 cents in May 1973 to 55. 1 cents in June 1974. Meanwhile, New York Stock Exchange shares lost $97 billion in value in six weeks. The New York Stock Exchange ( NYSE) is a Stock exchange based in New York City.

With the onset of the embargo, U. S. imports of oil from the Arab countries dropped from 1. 2 million barrels (190,000 m³) per day to 19,000 barrels (3,000 m³). Daily consumption dropped by 6. 1% from September to February, and by 7% during summer of 1974, as the United States suffered its first fuel shortage since the Second World War. World War II, or the Second World War, (often abbreviated WWII) was a global military conflict which involved a majority of the world's nations, including

Underscoring the interdependence of the world societies and economies, oil-importing nations in the noncommunist industrial world saw sudden inflation and economic recession. In the industrialized countries, especially the United States, the crisis caused the most hardship to the unemployed, the marginalized social groups, certain categories of aging workers, and increasingly, by younger workers. Schools and offices in the U. S. often closed down to save on heating oil; and factories cut production and laid off workers. In France, the oil crisis ended the Trente Glorieuses, 30 years of very high economic growth, and began the ensuing decades of permanent unemployment. This article is about the country For a topic outline on this subject see List of basic France topics. Les Trente Glorieuses ("The Glorious Thirty" refers to the thirty years from 1945-1975 following the end of the Second World War in 1945 in Unemployment occurs when a person is available to work and currently seeking work but the person is without work.

The embargo was not uniform across Europe. Of the nine members of the European Economic Community (EEC), the Dutch faced a complete embargo for their support of Israel, the United Kingdom and France received almost uninterrupted supplies (having refused to allow America to use their airfields and embargoed arms and supplies to both the Arabs and the Israelis), whilst the other six faced only partial cutbacks. The European Community (EC is one of the Three pillars of the European Union (EU created under the Maastricht Treaty (1992 The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located The UK had traditionally been an ally of Israel, and Harold Wilson's government had supported the Israelis during the Six Day War, but his successor, Ted Heath, had reversed this policy in 1970, calling for Israel to withdraw to its pre-1967 borders. James Harold Wilson Baron Wilson of Rievaulx, KG, OBE, FRS, PC (11 March 1916 &ndash 24 May 1995 was one of the most prominent British politicians Background Suez Crisis aftermath The Suez Crisis of 1956 represented a military defeat but a political victory for Egypt Sir Edward Richard George Heath, KG, MBE (9 July 1916 &ndash 17 July 2005 often known as Ted Heath, was Prime Minister of the United Kingdom The members of the EEC had been unable to achieve a common policy during the first month of the Yom Kippur War. The Community finally issued a statement on November 6, after the embargo and price rises had begun; widely seen as pro-Arab, this statement supported the Franco-British line on the war and OPEC duly lifted its embargo from all members of the EEC. Events 355 - Roman Emperor Constantius II promotes his cousin Julian to the rank of Caesar, entrusting him with The price rises had a much greater impact in Europe than the embargo, particularly in the UK (where they combined with strike by coal miners to cause an energy crisis over the winter of 1973-74, a major factor in the change of government) [7]

Despite being a target of the embargo as well, Japan fared particularly well in the aftermath of the world energy crisis of the 1970s compared to other oil-importing developed nations. Japanese automakers led the way in an ensuing revolution in car manufacturing. The large automobiles of the 1950s and 1960s were replaced by far more compact and energy efficient models. (Japan, moreover, had cities with a relatively high population density and a relatively high level of transit ridership. Population density (in agriculture standing stock and Standing crop) is a measurement of Population per unit area or unit volume

A few months later, the crisis eased. The embargo was lifted in March 1974 after negotiations at the Washington Oil Summit, but the effects of the energy crisis lingered on throughout the 1970s. The price of energy continued increasing in the following year, amid the weakening competitive position of the dollar in world markets.

Oregon gasoline dealers displayed signs explaining the flag policy in the winter of 1973-74
Oregon gasoline dealers displayed signs explaining the flag policy in the winter of 1973-74

Price controls and rationing

The crisis was further exacerbated by government price controls in the United States, which limited the price of "old oil" (that already discovered) while allowing newly discovered oil to be sold at a higher price, resulting in a withdrawal of old oil from the market and artificial scarcity. The rule had been intended to promote oil exploration. Hydrocarbon exploration (or oil and gas exploration) is the search by petroleum Geologists for Hydrocarbon deposits beneath the Earth's surface [8] This scarcity was dealt with by rationing of gasoline (which occurred in many countries), with motorists facing long lines at gas stations.

In the U. S. , drivers of vehicles with license plates having an odd number as the last digit (or a vanity license plate) were allowed to purchase gasoline for their cars only on odd-numbered days of the month, while drivers of vehicles with even-numbered license plates were allowed to purchase fuel only on even-numbered days. A vehicle registration plate is a metal or plastic plate attached to a Motor vehicle or trailer for official identification purposes A vanity plate or personalized plate (US prestige plate, private number plate, or personalised registration (UK or custom plate [9] The rule did not apply on the 31st day of those months containing 31 days, or on February 29 in leap years — the latter never came into play, since the restrictions had been abolished by 1976. Leap years Although the modern calendar counts a year as 365 days a complete revolution around the sun takes approximately 365 days and 6 hours A leap year (or intercalary year) is a year containing one or more extra days (or in the case of Lunisolar calendars an extra month in order to keep the

In some U. S. states, a three color flag system was used to denote gasoline availability at service stations. A green flag denoted unrationed sale of gasoline. A yellow flag denoted restricted and rationed sales. A red flag denoted that no gasoline was available at the service station but was open for other services. [10]

Coupons for gasoline rationing were ordered in 1974 and 1975 for Federal Energy Administration, but were never actually used for this crisis or the 1979 energy crisis. The 1979 (or second) oil crisis in the United States occurred in the wake of the Iranian Revolution. [11]

Conservation and reduction in demand

Gas coupon printed but not issued during the crisis
Gas coupon printed but not issued during the crisis

The U. S. government response to the embargo was quick but of limited effectiveness. A National Maximum Speed Limit of 55 mph (near 90 km/h) was imposed through the Emergency Highway Energy Conservation Act to help reduce consumption. The National Maximum Speed Law in the United States was a provision of the 1974 Emergency Highway Energy Conservation Act that prohibited speed limits higher Emergency Highway Energy Conservation Act was a federal bill in the United States, signed on January 2, 1974, that enacted the 55 mph National Maximum President Nixon named William Simon as an official "energy czar," and in 1977, a cabinet-level Department of Energy was created, leading to the creation of the United States's Strategic Petroleum Reserve. William Simon may refer to William E Simon - former Secretary of Treasury of the U The United States Department of Energy ( DOE) is a Cabinet -level department of the United States government responsible for energy policy This article refers to the United States Strategic Petroleum Reserve The National Energy Act of 1978 was also a response to this crisis. The National Energy Act of 1978 was a legislative response by the U

Year-round daylight saving time was implemented: at 2:00 a. Daylight saving time ( DST m. local time on January 6, 1974, clocks were advanced one hour across the nation. Events 1066 - Harold Godwinson is crowned King of England. 1205 - Philip of Swabia becomes King Year 1974 ( MCMLXXIV) was a Common year starting on Tuesday (link will display full calendar of the 1974 Gregorian calendar. The move spawned significant criticism because it forced many children to commute to school before sunrise. As a result, the clocks were turned back on the last Sunday in October as originally scheduled, and in 1975 clocks were set forward one hour at 2:00 a. m. on February 23. Events 1455 - Traditional date for the publication of the Gutenberg Bible, the first Western Book printed from Movable The pre-existing daylight-saving rules, calling for the clocks to be advanced one hour on the last Sunday in April, were restored in 1976.

Gas stations abandoned during the crisis were sometimes used for other purposes. This station at Potlatch, Washington was turned into a revival hall.
Gas stations abandoned during the crisis were sometimes used for other purposes. This station at Potlatch, Washington was turned into a revival hall. Potlatch is an unincorporated community in Mason County Washington, United States. Revival in a Christian context generally refers to a specific period of spiritual renewal in the life of the Church

The crisis also prompted a call for individuals and businesses to conserve energy — most notably a campaign by the Advertising Council using the tag line "Don't Be Fuelish. Advertising Council, commonly known as the Ad Council, is an American non-profit organization that distributes Public service announcements on behalf of " Many newspapers carried full-page advertisements that featured cut-outs which could be attached to light switches that had the slogan "Last Out, Lights Out: Don't Be Fuelish" emblazoned thereon. A newspaper is a written Publication containing News, information and Advertising, usually printed on low-cost paper called Newsprint.

The U. S. "Big Three" automakers' first order of business after Corporate Average Fuel Economy (CAFE) standards were enacted was to downsize existing automobile categories as mandated by the U. S. Department of Transportation. By the end of the 1970s, full-size luxury cars with a 130-inch (3. 3 m) wheelbase and gross weights averaging 4,500 pounds were a thing of the past. In both road and rail Vehicles the wheelbase is the distance between the centers of the front and rear wheels Before the mass production of automatic overdrive transmissions and electronic fuel injection, the traditional front engine/rear wheel drive layout was being phased out for the more efficient front engine/front wheel drive, starting with compact cars. Using the Volkswagen Rabbit as the archetype, much of Detroit went to front wheel drive after 1980 in response to CAFE's 27. The Volkswagen Golf or VW Golf ( Mk1 and Mk5 badged as Volkswagen Rabbit in the United States and Canada, Mk1 badged as Volkswagen 5 mile per gallon fuel consumption mandate.

Though not required by legislation, the sport of auto racing voluntarily sought reductions. The 24 Hours of Daytona was cancelled in 1974. The Rolex 24 at Daytona (frequently referred to by its historical title the 24 Hours of Daytona) is a 24-hour sports car Endurance race held annually at Also in 1974, NASCAR reduced all race distances by 10%. The National Association for Stock Car Auto Racing ( NASCAR) is the largest sanctioning body of Stock cars in the United States. At the Indianapolis 500, qualifying was reduced from four days down to two, and several days of practice were eliminated. The Indianapolis 500-Mile Race, often shortened to Indianapolis 500 or Indy 500, and historically known simply as "The 500" is an American

Search for alternatives

The energy crisis led to greater interest in renewable energy and spurred research in solar power and wind power. Renewable energy is Energy generated from Natural resources mdashsuch as Sunlight, Wind, Rain, tides and geothermal Solar energy is the Light and radiant heat from the Sun that powers Earth 's Climate and Weather and sustains Life Wind Power is the conversion of wind energy into a useful form such as electricity using Wind turbines At the end of 2007 worldwide capacity of wind-powered generators was It also led to greater pressure to exploit North American oil sources, and increased the West's dependence on coal and nuclear power. This article is a subarticle of Nuclear power. A nuclear reactor is a device in which Nuclear chain reactions are initiated controlled This included increased interest in mass transit and personal rapid transit, which do not use petroleum directly. Personal rapid transit (PRT, also called personal automated transport (PAT or podcar, is a Public transportation concept that offers on-demand non-stop

In Australia, heating oil ceased being considered an appropriate winter heating fuel. For a topic outline on this subject see List of basic Australia topics. This often meant that a lot of oil-fired room heaters that were popular from the late-1950s to the early-1970s were considered outdated. Gas-conversion kits that let the heaters burn natural gas or propane were introduced. Natural gas is a Gaseous Fossil fuel consisting primarily of Methane but including significant quantities of Ethane, Propane, Propane is a three- Carbon Alkane, normally a gas but compressible to a liquid that is transportable

For the handful of industrialized nations that were net energy exporters, the effects of the oil crisis were very different. In Canada the industrial east suffered many of the same problems of the United States. Country to "Dominion of Canada" or "Canadian Federation" or anything else please read the Talk Page In oil rich Alberta, however, there was a sudden and massive influx of money that quickly made it the richest province in the country. Alberta (ælˈbɝtə is one of Canada's prairie provinces. It became a province on September 1 1905 The federal government attempted to correct this imbalance through the creation of the government-owned Petro-Canada and later the National Energy Program. Petro-Canada () is a Canadian oil and gas firm Its headquarters are in the Petro-Canada Centre in Calgary, Alberta The National Energy Program ( NEP) was an energy policy of the Government of Canada. These efforts produced a great deal of anger in the west producing a sentiment of alienation that has remained a central element of Canadian politics to this day. Overall the oil embargo had a sharply negative effect on the Canadian economy. The economic malaise in the United States easily crossed the border and increases in unemployment, and stagflation hit Canada as hard as the United States despite Canadian fuel reserves. Stagflation is an economic situation in which Inflation and Economic stagnation occur simultaneously and remain unchecked for a period of time

The Soviet Union was also a net oil exporter. The Union of Soviet Socialist Republics (USSR was a constitutionally Socialist state that existed in Eurasia from 1922 to 1991 The Soviet economy had stagnated for several years, and the increase in the price of oil had a beneficial effect, especially after the bloc's internal terms of trade were adjusted to reflect the increased value of Russian oil. See also History of the Comecon The Comprehensive Program for Socialist Economic Integration was set up in 1971 and laid the guidelines for Comecon activity The increase in foreign currency reserves allowed the import of grain and other foodstuffs from abroad, and increased production of consumer goods and kept military spending at its traditional levels. Some historians believe the windfall in oil revenues during this period kept the Soviet Union in existence for a considerably longer period of time than would otherwise have occurred.

The Brazilian government implanted a very large project called "Proálcool" (pro-alcohol) that would make a mixture of ethanol to gas for using in the vehicles. |utc_offset = -2 to -4 |time_zone_DST = BRST |utc_offset_DST = -2 to -5 |cctld Brazil is the world's second largest producer of Ethanol and the world's largest exporter and it is considered to have the world's first Sustainable This project, focused on producing ethanol from sugar cane, is still ongoing and has reduced the oil importation needs of the country, and also has decreased the price of the gas in that nation.

Macroeconomic effects

The 1973 oil crisis was a major factor in Japan's economy shifting away from oil-intensive industries and resulted in huge Japanese investments in industries such as electronics. Electronics refers to the flow of charge (moving Electrons through Nonmetal conductors (mainly Semiconductors, whereas electrical

The Western nations' central banks decided to sharply cut interest rates to encourage growth, deciding that inflation was a secondary concern. A central bank, reserve bank, or monetary authority is the entity responsible for the Monetary policy of a country or of a group of member states Interest is a fee paid on borrowed capital Assets lent include Money, Shares, Consumer goods through Hire purchase, major assets Although this was the orthodox macroeconomic prescription at the time, the resulting stagflation surprised economists and central bankers, and the policy is now considered by some to have deepened and lengthened the adverse effects of the embargo.

Long-term effects of the embargo are still being felt. Public suspicion of the oil companies, who were thought to be profiteering or even working in collusion with OPEC, continues (seven of the fifteen top Fortune 500 companies in 1974 were oil companies, with total assets of over $100 billion). Please do not add the complete list of fortune 500 companies The list is copyrighted by Fortune which makes money by selling the content

Effects on international relations

The Cold War policies of the Nixon administration also suffered a major blow in the aftermath of the oil embargo. Cold War is the state of conflict tension and competition that existed between the United States and the Soviet Union (USSR and their respective allies from the They had focused on China and the Soviet Union, but the latent challenge to U. Talk People's Republic of China) PEOPLE'S REPUBLIC OF CHINA ARTICLE GUIDELINES S. hegemony coming from the Third World became evident. U. S. power was under attack even in Latin America.

The oil embargo was announced roughly just one month after a right-wing military coup in Chile toppled elected socialist president Salvador Allende on September 11, 1973. Chile, officially the Republic of Chile ( Spanish:) is a country in South America occupying a long and narrow Coastal strip wedged between the The Chilean coup d'état of 1973 is a landmark in the History of Chile and the Russo-American Cold War. Salvador Isabelino Allende Gossens (June 26 1908 – September 11 1973 was President of Chile from November 1970 until his death during the coup d'état of Events 9 - The Battle of the Teutoburg Forest ends 506 - The Bishops of Visigothic Gaul Year 1973 ( MCMLXXIII) was a Common year starting on Monday (link will display full calendar of the 1973 Gregorian calendar. The United States' subsequent assistance to this government did little to curb the activities of socialist guerrillas in the region. Guerrilla warfare is the unconventional warfare and combat with which a small group of combatants use mobile tactics (ambushes raids etc The response of the Nixon administration was to propose doubling of the amount of military arms sold by the United States. As a consequence, a Latin American bloc was organized and financed in part by Venezuela and its oil revenues, which quadrupled between 1970 and 1975.

In addition, Western Europe and Japan began switching from pro-Israel to more pro-Arab policies (some of which are still in effect today). This change further strained the Western alliance system, for the United States, which imported only 12% of its oil from the Middle East (compared with 80% for the Europeans and over 90% for Japan), remained staunchly committed to its backing of Israel.

A year after the unveiling of the 1973 oil embargo, the nonaligned bloc in the United Nations passed a resolution demanding the creation of a "new international economic order" in which resources, trade, and markets would be distributed more equitably, with the local populations of nations within the global South receiving a greater share of benefits derived from the exploitation of southern resources, and greater respect for the right to self-directed development in the South be afforded by the North. The United Nations ( UN) is an International organization whose stated aims are to facilitate cooperation in International law, International security

Decline of OPEC

Further information: 1980s oil glut
OPEC net oil export revenues for 1971 - 2007.
OPEC net oil export revenues for 1971 - 2007. The 1980s oil glut was a surplus of crude oil caused by falling demand following the 1973 and 1979 energy crises. [12]

Since 1973, OPEC failed to hold on to its preeminent position, and by 1981, its production was surpassed by that of other countries. Additionally, its own member nations were divided among themselves. Saudi Arabia, trying to gain back market share, increased production and caused downward pressure on prices, making high-cost oil production facilities less profitable or even unprofitable. The 1980s oil glut was a surplus of crude oil caused by falling demand following the 1973 and 1979 energy crises. The world price of oil, which had reached a peak in 1979 during the 1979 energy crisis, at more than US$80 per barrel, decreased during the early 1980s to US$38 per barrel (239 US$/m³). The 1979 (or second) oil crisis in the United States occurred in the wake of the Iranian Revolution. In real prices, oil briefly fell back to pre-1973 levels. Overall, the reduction in price was a windfall for the oil-consuming nations: United States, Japan, Europe and especially the Third World.

Part of the decline in prices and economic and geopolitical power of OPEC comes from the move away from oil consumption to alternate energy sources. OPEC had relied on the famously limited price sensitivity of oil demand to maintain high consumption but had underestimated the extent to which other sources of supply would become profitable as the price increased. In Economics and business studies the price elasticity of demand (PED is a measure of the sensitivity of quantity demanded to changes in price Electricity generation from nuclear power and natural gas, home heating from natural gas and ethanol blended gasoline all reduced the demand for oil. Nuclear power is any Nuclear technology designed to extract usable Energy from atomic nuclei via controlled Nuclear reactions Natural gas is a Gaseous Fossil fuel consisting primarily of Methane but including significant quantities of Ethane, Propane,

At the same time, the drop in prices represented a serious problem for oil-producing countries in northern Europe and the Persian Gulf region. The Persian Gulf, in the Southwest Asian region is an extension of the For a handful of heavily populated, impoverished countries, whose economies were largely dependent on oil — including Mexico, Nigeria, Algeria, and Libya — governments and business leaders failed to prepare for a market reversal, the price drop placed them in wrenching, sometimes desperate situations. The United Mexican States ( or commonly Mexico (ˈmɛksɪkoʊ () is a federal constitutional Republic in North America. Nigeria, officially named the Federal Republic of Nigeria, is a federal Constitutional republic comprising thirty-six states and one Federal Algeria ( ar [[Arabic]] الجزائر, Al Jaza'ir ælʤæˈzæːʔir Amazigh: ⴷⵥⴰⵢⴻⵔ Dzayer) officially the People's Libya ( ليبيا ar-Latn Lībiyā; Libyan vernacular: Lībya; Amazigh:) officially the Great Socialist People's Libyan Arab

When reduced demand and over-production produced a glut on the world market in the mid-1980s, oil prices plummeted and the cartel lost its unity. Oil exporters such as Mexico, Nigeria, and Venezuela, whose economies had expanded in the 1970s, were plunged into near-bankruptcy, and even Saudi Arabian economic power was significantly weakened. The divisions within OPEC made subsequent concerted action more difficult.

Nevertheless, the 1973 oil shock provided dramatic evidence of the potential power of Third World resource suppliers in dealing with the developed world. The vast reserves of the leading Middle East producers guaranteed the region its strategic importance, but the politics of oil still proves dangerous for all concerned to this day. Petroleum politics have been an increasingly important aspect of international diplomacy since the discovery of oil in the Middle East in the early 1900s

Long term effects

Despite efforts by the Arab states to use the "oil weapon" to display Western energy vulnerability and the futility of maintaining a heavy-handed pro-Israeli policy, it can be argued that the Arab states ultimately traded diplomatic gains for ever-increasing dependence on the West for economic and military security. The sharp reaction by the United States, Western Europe and Japan, the Soviet Union, and the influx of new oil wealth, had dire effects for the Arab states in the years following the 1973 Yom Kippur War and OPEC embargo. Prior to the embargo, the geo-political competition between the Soviet Union and the United States, in combination with low oil prices that hindered the necessity and feasibility for the West to seek alternative energy sources, presented the Arab States with financial security, moderate economic growth, and disproportionate international bargaining power. [13] Following the embargo, higher oil prices opened new avenues for energy exploration or expansion including Alaska, the North Sea, the Caspian Sea, and Caucasus. Alaska ( Аляска Alyaska) is a state in the United States of America, in the northwest of the North American continent The North Sea is a marginal, Epeiric sea of the Atlantic Ocean on the European Continental shelf. The Caspian Sea is the largest enclosed body of water on Earth by area variously classed as the world's largest lake or a full-fledged Sea. The Caucasus ( also referred to as North Caucasus) is a geopolitical region located between Europe Asia & Middle East [14]

Soviet reaction

Prior to the ascendence of Mohammed Anwar Al Sadat to president of Egypt in 1970, the Middle East had been an important arena in the global superpower competition, most lucidly displayed in the arms sales and cooperation between the American and Soviet governments with Israel, Saudi Arabia, and Iran on one hand and Egypt, Syria, and Iraq on the other. Although none of these states entered into any formal alliances comparative to the North Atlantic Treaty Organization, they did benefit greatly from the geo-political competition in the region and vacillations in alignment often resulted in greater gains of assistance. The North Atlantic Treaty This competitive environment, beneficial to the regional states involved, was mitigated sharply after 1970. Sadat's dismissal of Soviet specialists in Egypt and the dramatic price increases in hydrocarbons hardened relations with all of the Middle East and created new opportunities for the export of Soviet oil. Exploration in the Caspian Basin and Siberia became more cost effective. Siberia (Сиби́рь Sibir) is the name given to the vast region constituting almost all of Northern Asia and for the most part currently serving Former cooperation evolved into a far more adversarial relationship as the Soviet Union increased oil production and export (by 1980 the Soviet Union was the world's largest producer of oil) to take advantage of the supply problems in the West created by OPEC's production reductions. [15][16] This growing economic competition turned into genuine fears of military aggression after the 1979 Soviet invasion of Afghanistan, leaving the Gulf States to look to the United States for the type of security guarantees against Soviet military action in the Persian Gulf that the Israelis had exclusively received only a decade earlier. The Soviet war in Afghanistan, also known as the Soviet-Afghan War or just the Soviet Invasion of Afghanistan, was a nine-year conflict involving

Growing security concerns

The Soviet invasion of Afghanistan was only part of the growing security destabilization in the Middle East, most obviously seen in the increased sale of American weapons, technology, and outright military presence. Saudi Arabia and Iran became increasingly dependent on bi-lateral American security assurances to combat both external and internal threats, including increased military competition between these states because of the increased oil revenues. Both states were seemingly competing for preeminence in the Persian Gulf and using increased revenues on disproportionately powerful military forces. The Persian Gulf, in the Southwest Asian region is an extension of the By 1979, Saudi weapon purchases from the United States was in excess of five times the amount that Israel was purchasing annually. [17] Following the failure of the Shah during January 1979 to maintain control of Iran, the Saudis were forced to deal with the prospect of internal destabilization via Islamic fundamentalism, a reality which would quickly be revealed in the seizure of the Grand Mosque in Mecca by Wahhabi extremists during November and a Shia revolt in al-Hasa during December. The Grand Mosque Seizure on November 20, 1979, was an armed attack and takeover by armed Islamic fundamentalist Dissidents of the Al-Masjid Mecca ˈmɛkə also spelled Makkah ˈmækə (in full Makkah Al-Mukarramah (Arabic mækːæ(t ælmʊkarˑamæ مكّة المكرمة, literally Honored Wahhabism ( Arabic: Al-Wahhābīyya الوهابية or Wahabism is a conservative reformist call of Sunni Islam attributed to [18][19]

Conclusions

Growing fears about eventual Western energy independence, various security threats, and the absence of a Western rival in the geo-political competition over the Middle-East led the Arab states in a more dependent relationship with the West. This is most explicit in Saudi Arabia's consistent policy of price and production moderation in an effort to reduce the chances of Western alienation and the opportunity costs for alternative energy production. [20] The exchange for Western moderation in Arab-Israeli affairs ultimately led to a reshaping of the Middle-Eastern geo-political landscape that was significantly less advantageous than prior to 1973.

Impact on motor industry

Impact on West European motor industry

The motor industry was one of Western Europe's most affected industries in the wake of the 1973 oil crisis.

After the Second World War most West European countries applied heavy taxes to motor fuel because it was imported, and as a result most cars made in Europe were small and economical. However by the late sixties as wealth increased car sizes were rising despite heavy fuel taxes, although some of the more upmarket brands were building cars that could take lead-free fuel, and there were still a number of "economy" cars in production at this time.

But the oil crisis gradually saw many West European car buyers move away from larger, less economical cars. The most notable result of this transition in the car market was the rise in popularity of compact hatchbacks.

The only notable small hatchbacks built in Western Europe at the time of the oil crisis were the Peugeot 104, Renault 5 and Fiat 127. The Peugeot 104 is a supermini motor car designed by Paolo Martin and produced by the French car manufacturer Peugeot between 1972 and 1988 The Renault 5 (also called the R5 was a supermini produced by the French automaker Renault in two generations between 1972 and 1996 The Fiat 127 is a supermini produced by the Italian automaker Fiat between 1971 and 1983 By the end of the decade, the market had massively expanded with the introduction of the Ford Fiesta, Vauxhall Chevette (sold as the Opel Kadett City in West Germany), Chrysler Sunbeam and Citroen Visa. The Ford Fiesta is a Supermini car designed by Ford Europe, a subsidiary of Ford Motor Company The Chevette was a model of car manufactured by Vauxhall in the UK from 1975 to 1983 The Opel Kadett is a Small family car produced by the German automaker Opel between 1937 and 1940 then from 1962 to 1992 West Germany ( Inf German: Westdeutschland or West-Deutschland) was the common English name for the Federal Republic of Germany ( For the Sunbeam-Talbot or Sunbeam-Talbot-Darracq cars see Sunbeam Car Company The Chrysler Sunbeam is a small supermini 3-door Hatchback The Citroën Visa is a supermini that was produced by the French car marque Citroën from 1978 to 1988

Buyers looking for larger cars were increasingly drawn to medium sized hatchbacks that were virtually unknown in Europe in 1973, but by the end of the decade were gradually replacing saloons as the mainstay of this sector. Between 1973 and 1980, the following medium sized hatchbacks were launched across Europe: the Chrysler/Simca Horizon, Fiat Ritmo (Strada in the UK), Ford Escort MK3, Renault 14, Vauxhall Astra (also sold as the Opel Kadett) and Volkswagen Golf. The Horizon, was a Subcompact automobile developed by Chrysler Europe and was sold in Europe between 1977 and 1985 under the Chrysler, Simca The 1978 Fiat Ritmo, styled by Bertone of Italy was the most distinctive looking Small family car in Europe on its launch in 1978 Turin Motorshow Over the years the name 'Ford Escort' has been used for several models The Renault 14 is a Small family car produced by the French manufacturer Renault between 1976 and 1983 See also Opel Astra, Holden Astra Astra is a model-name which has been used by Vauxhall, the British subsidiary of General Motors The Opel Kadett is a Small family car produced by the German automaker Opel between 1937 and 1940 then from 1962 to 1992 The Volkswagen Golf or VW Golf ( Mk1 and Mk5 badged as Volkswagen Rabbit in the United States and Canada, Mk1 badged as Volkswagen These cars offered new standard of fuel economy, which were much needed in the aftermath of the oil crisis.

The modern hatchbacks launched in the wake of the oil crisis were considerably more economical than the traditional saloons they were taking the place of, and even attracted a considerable number of buyers who would have otherwise chosen cars in the next sector. Their success continued into the 1980s and by the later part of the decade, some 15 years after the oil crisis, hatchbacks almost monopolised most European small and medium car markets, and had gained a substantial share of the large family car market.

Impact on U. S. motor industry

Like Western Europe, Detroit was significantly impacted by the 1973 oil embargo. Before the embargo American cars got bigger and thirstier each year. V8 engines got bigger, the cars got longer wheelbases, and more and more power and convenience features added weight and sapped power. By 1971 the standard engine in a Chevrolet Caprice was a 400-cubic inch V8, and most came with power windows, seats, and air conditioning. The wheelbase of this car was a long 121. 5 inches (3,090 mm), and Motor Trend's 1972 test of the similar Chevrolet Impala could not yield more than 15 miles per gallon, even on the highway. However, after the oil embargo, these big behemoths sat on dealers' lots week after week, month after month, without being sold while the newly-introduced four-cylinder subcompacts and six-cylinder compacts were in greater demand than the supply. In addition, Japanese and European automakers began to export more compact cars into the US than ever before to meet the demand. Toyota become a top seller in a short time due to the superior quality of their models. Nissan (Datsun prior to 1984)), Peugeot, Volkswagen, Mazda and Honda also racked up record sales in the US during this period.

This forced the Big Three (GM, Ford, and Chrysler) to introduce smaller and fuel-efficient models for domestic sales. The Chrysler Omni/Horizon, Ford Fiesta and Fairmont, and the Chevrolet Chevette all had four-cylinder engines and room for at least four passengers by the late seventies. But Toyota, Honda, and Nissan had by that time captured the market to a great degree with their improved, front-wheel drive models that offered more for the money and better fuel mileage than their American competitors.

The February 2008 issue of Collectible Automobile magazine contained an article titled "Designing Cars of the Seventies: Freedoms Lost" which detailed the following: federal safety standards e. g. NHTSA Federal Motor Vehicle Safety Standard 215 (pertaining to the 5 mph (8. 0 km/h) safety bumpers), and marketing compacts like the 1974 Mustang II as a prelude to downsizing (where the DOT revised vehicle categories). An article in the March 2008 Collectible Automobile magazine detailing GM's 1977 full-sized cars reflected on the 1973 oil crisis and subsequent downsizing. It concluded that if mass production of overdrive transmission been introduced, there would not have actually been any vehicle downsizing.

By 1979, virtually all the big "full size" American cars were "downsized," featuring smaller engines and smaller dimensions outside, but generally retaining the roominess demanded by Americans. These new smaller models were able to achieve much better fuel economy than their predecessors. GM and Ford Motor Company continued production of downsized luxury cars while Chrysler Corporation ended production of their full-sized luxury sedans in 1981, leaving the company with a full front wheel drive lineup. Front-wheel drive (or FF layout) is a form of engine / transmission layout used in Motor vehicles where the engine drives the front Wheels

See also

Notes

  1. ^ Energy Insights: News: Oil price - speculation and international politics at play
  2. ^ James S. Robbins on National Review Online
  3. ^ Smith, William. An energy crisis is any great bottleneck (or price Rise) in the supply of energy resources to an economy. A supply shock is an event that suddenly changes the price of a commodity or service The 1967 Oil Embargo began on June 6, 1967, one day after the beginning of the Six-Day War, with a joint Arab decision to deter any countries The 1979 (or second) oil crisis in the United States occurred in the wake of the Iranian Revolution. The 1980s oil glut was a surplus of crude oil caused by falling demand following the 1973 and 1979 energy crises. The 1990 (or third) energy crisis was milder and more brief than the two previous oil crises ( 1973 and 1979) A boycott is a form of Consumer activism involving the act of voluntarily abstaining from using buying or dealing with someone or some other organization as an expression of In international Commerce and politics, an embargo is the prohibition of commerce D. “Price Quadruples for Iranian Crude Oil at Auction”, New York Times 12 Dec 1973.
  4. ^ Hammes, David. and Douglas Wills. “Black Gold: The End of Bretton Woods and the Oil-Price Shocks of the 1970s,” The Independent Review, v. IX, n. 4, Spring 2005. pp. 501-511.
  5. ^ Yergin, Daniel H., The Prize: The Epic Quest for Oil, Money, and Power (New York: Simon and Shuster, 1991), p. Daniel H Yergin (born February 6, 1947) is an American author speaker and economic researcher The Prize The Epic Quest for Oil Money and Power is Daniel Yergin 's 800-page history of the global Oil industry from the 1850s through 1990 597.
  6. ^ The price of oil - in context. Retrieved on 2007-05-29. Year 2007 ( MMVII) was a Common year starting on Monday of the Gregorian calendar in the 21st century. Events 363 - Roman Emperor Julian defeats the Sassanid army in the Battle of Ctesiphon, under the walls of the
  7. ^ "The World; British Miners Settle for Less", New York Times, January 24, 1982.  
  8. ^ "Oil Price Controls: A Counterproductive Effort", Federal Reserve Bank of St. Louis Review, November 1975.  
  9. ^ "Gas Fever: Happiness Is a Full Tank", Time Magazine, February 18, 1974.  
  10. ^ "Spotty Local Starts", Time Magazine, February 25, 1974.  
  11. ^ "Rationing Coupons Shredded", New York Times, June 2, 1984.  
  12. ^ http://www.eia.doe.gov/emeu/cabs/OPEC_Revenues/OPEC.html
  13. ^ Richie Ovendale, The Origins Of The Arab-Israeli Wars (New York: Pearson Longman, 2004), p. 184-191 and 197
  14. ^ Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power (New York: Simon and Shuster, 1991), p. 619-625
  15. ^ "World: Saudis Edge U. S. on Oil" in Washington Post Jan 3, 1980 pg. D2
  16. ^ Dusko Doder "Soviet Production of Gas, Oil Set Records Over 6 Months" in Washington Post Aug 14, 1980 pg. A24
  17. ^ George C. Wilson "U. S. Military Sales To Saudis 5 Times Total For Israelis" in Washington Post Oct. 11, 1979 pg. A24
  18. ^ Ian Rutledge Addicted To Oil: America’s Relentless Drive For Energy Security (New York: I. B. Tauris, 2005), p. 47
  19. ^ Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power (New York: Simon and Shuster, 1991), p. 609
  20. ^ Rutledge, p. 49

Further reading

External links

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