Oil Crisis 1973 Essay

Between 1970 and 1980 a worldwide oil crisis erupted that affected both oil producing and oil consuming nations. Two of the countries that felt the impact of this crisis were the United States, being mostly dependent on imported oil at the time, and Saudi Arabia, one of the largest oil producing nations, then and now. The oil crisis of 1970 presented many problems for of Saudi Arabia, including loosened ties with some allies, and in the United States, different problems such as, oil shortages and rations, arose with each change in control. These conflicts that emerged in each nation left lasting effects and came with consequences each nation took much note of.

The oil crisis of the 1970s began with the Allied powers took part of Palestine to create the Israeli state in 1948. This caused many problems between nations. Arabs refused to accept the Israeli state and began attacking. In 1973 the Yom Kippur War began when Syria and Egypt attacked the state with support from the Soviet Union. This war was quickly turned into a proxy war as the United States supported Israel. As a response to this support OPEC puts an oil embargo upon the U.S. and other countries that supported their enemies. This embargo spiked oil prices, from three dollars a barrel to twelve, and the world went into an oil crisis.[1]

After helping found OPEC, the Organization of Petroleum Exporting Countries, in 1960, Saudi Arabia was one of the world’s top oil producing countries.[2] In the 1970s their energy consumption began to climb regardless of the rising prices. This continued into the next decade as oil was the main export of Saudi Arabia. After setting the embargo Saudi Arabia wished to, and tried to keep its ties with the United States close, but the other Arab nations did not agree with this. They put much pressure on Saudi Arabia which resulted in the loosening of their ties with the U.S. [3]

Along with the oil embargo, there were other causes of these spikes in oil prices as well. In 1970 the Trans-Arabian pipeline in Syria ruptured, causing an 8% rise in price.[4] During the time of the oil embargo the United States faced many issues. With oil prices now exceptionally high there had to be implications put upon companies. These implications consisted of rations which controlled the amount of oil each company would be allowed to have. The rations allowed to the companies also affected the customers. Gas stations set limits to the number of gallons that people could take and companies that heated homes lowered their allowance as well. Many stations ran out of gasoline occasionally and were forced to refuse people service and put up signs, like the one above, and close off access to pumps. This left many people without heat and other necessities during the winter.[5]  From 1972-1978 the price per oil barrel rose $9.02, from $3.50 a barrel to $12.52.[6]

 

 

Oil prices today can still be seen fluctuating across the board from high to low, but none of these prices ever go as high as they were during the crisis.[7] Since this time Saudi Arabia has maintained its positions as the leading oil producer and exporter. However, the United States has made its way to being one of the top, non-OPEC, oil producing countries due to new methods of extracting. Although it now produces much more oil, the United States still relies fairly heavily on imported oil. All seems to be well since the end of the 1970 oil crisis but some experts say that we may have another one in the future.[8] Saudi Arabia may be in trouble though, as many are saying they are, “burning oil to stay cool,” as they may be on the verge of an energy crisis.[9]

Throughout the embargo both countries endured many changes. Saudi Arabia had to loosen its ties with the U.S. due to pressure but on it by the other Arab nations and changed its foreign policy during the time. The United States had to change its spending and usage of oil.[10] Both nations took this crisis into account and try their hardest to prevent another shock like this one to happen again.

Footnotes:

[1] “Energy Crisis (1970s).” History.com. 2010. Accessed November 10, 2015.

http://www.history.com/topics/energy-crisis.

[2] “OPEC: Brief History.” OPEC. 2015. Accessed November 12, 2015.

http://www.opec.org/opec_web/en/about_us/24.htm

[3] Al-Sowayel, Naila. 1990. “A Historical Analysis of Saudi Arabia’s Foreign Policy in Time of Crisis: The October 1973 War and the Arab Oil Embargo.” Georgetown University. http://search.proquest.com/docview/303848353?accountid=14902.

[4] Hamilton, James D. Historical oil shocks, pp. 12-17. National Bureau of Economic Research, 2011.

[5] Hamilton, James D. Historical oil shocks, pp. 12-17. National Bureau of Economic Research, 2011.

[6] Oppel, Richard A. “Lessons from the 1970s Oil Crisis: Let the Market Decide.” Journal Record, Oct 06, 1, 2000.

[7] Oppel, Richard A. “Lessons from the 1970s Oil Crisis: Let the Market Decide.” Journal Record, Oct 06, 1, 2000.

[8] Fried, Edward R. Higher Oil Prices and the World Economy: The Adjustment Problem. Washington: Brookings          Institution, 1975.

[9] Lebling, Robert. “Saudi Arabia’s Energy Crisis.” Arabia the Gulf and the GCC Blog. May 15, 2012. Accessed December 2, 2015. http://ncusar.org/blog/2012/05/saudi-arabias-energy-crisis/.

[10] Hartshorn, Jack E. “Two Crises Compared: OPEC Pricing in 1973-1975 and 1978-1980.” OPEC: Twenty Years and Beyond, 1982.

Bibliography:

Secondary Sources:

Al-Sowayel, Naila. 1990. “A Historical Analysis of Saudi Arabia’s Foreign Policy in Time of Crisis: The October 1973 War and the Arab Oil Embargo.” Georgetown University. http://search.proquest.com/docview/303848353?accountid=14902.

“Energy Crisis (1970s).” History.com. 2010. Accessed November 10, 2015.

http://www.history.com/topics/energy-crisis.

Hamilton, James D. Historical oil shocks, pp. 12-17. National Bureau of Economic Research, 2011.

Hartshorn, Jack E. “Two Crises Compared: OPEC Pricing in 1973-1975 and 1978-1980.” OPEC: Twenty Years and Beyond, 1982.

Lebling, Robert. “Saudi Arabia’s Energy Crisis.” Arabia the Gulf and the GCC Blog. May 15, 2012. http://ncusar.org/blog/2012/05/saudi-arabias-energy-crisis/.

“OPEC: Brief History.” OPEC. 2015. Accessed November 12, 2015.

http://www.opec.org/opec_web/en/about_us/24.htm

Oppel, Richard A. “Lessons from the 1970s Oil Crisis: Let the Market Decide.” Journal Record, Oct 06, 1, 2000.

Yager, Joseph A. “The Energy Battles of 1979.” In Energy Policy in Perspective, pp. 601-636. JF Kennedy School of Government Case Cambridge, MA, 1981.

Primary Sources:

 Fried, Edward R. Higher Oil Prices and the World Economy: The Adjustment Problem. Washington: Brookings                    Institution, 1975.

“OPEC’s Painful Squeeze.” Time 114, no. 2 (1979): Time, 1979, Vol.114(2).

Categorized
section 8 (11:10-12)

There were a series of energy crises between 1967 and 1979 caused by problems in the Middle East but the most significant started in 1973 when Arab oil producers imposed an embargo.

The decision to boycott America and punish the west in response to support for Israel in the Yom Kippur war against Egypt led the price of crude to rise from $3 per barrel to $12 by 1974.

The price of petrol rocketed, making all transport more expensive. There was even talk in Britain of rationing using coupons left over from the second world war.

The Conservative government, led by Ted Heath, was already struggling to cope with high food prices caused by global shortages. This fed into an inflation rate which, under Harold Wilson's Labour government, hit more than 24% (by comparison, inflation in January 2011 was at 4%, double the Bank of England's current target of a 2% inflation rate).

Trade unions submitted claims for higher wages to keep up with rising prices, which led to confrontation with the miners, the introduction of a three-day week and ultimately the fall of the Tories in a general election of February 1974.

A Labour government under Harold Wilson took power but faced a collapse in corporate profits and stock market values. Burmah Oil, a big name in the energy sector, had to be rescued by the Bank of England after running into problems.

But the wider oil industry in Britain was a notable winner at this time as money was poured into the North Sea on the back of high crude oil prices, allowing the UK to eventually become a net exporter.

This period of high energy prices was not good for the country's already shaky manufacturing base. The gradual demise of the once highly important British-owned car industry was hastened by the extra costs of production.

High oil prices also encouraged a switch to smaller vehicles and helped create the environment in which Japanese firms such as Toyota and Honda became dominant in the UK and further afield.

The Japanese, who had long developed smaller and more fuel-efficient cars, were eventually welcomed in Britain and their experience helped to resurrect UK manufacturing.

The oil price shock also changed the nature of British relations abroad, which had been more focused on the dangers posed by Russia and China as part of a cold war. The Middle Eastern countries had been seen up until 1973 as reliable friends, but the UK and others in the west gave the region far more attention after the embargo, even though it remained in place for a relatively small amount of time.

From then onwards – particularly after the 1979 oil shock caused by the fall of the Shah in Iran – Britain paid much more attention to those areas of the world that could provide stable and alternative oil and gas supplies such as Nigeria and Indonesia.

The early 70s also led to a resurgence of interest in other forms of energy such as solar, which gradually withered as the price of oil began to fall and Britain became self-sufficient. It took countries with much smaller indigenous oil supplies to take radical new steps. Brazil, for example, made a revolutionary switch to running its vehicles on ethanol from sugar cane.

Britain's interest in alternative energy has been revived due to climate change and the need for a low-carbon economy. The current instability in the Middle East may finally bring a more lasting change to the way we work and live.

• This article was amended on 12 March 2011. A phrase in the original said that the price pressures confronting the Heath government "fed into an inflation rate that hit more than 25%". This has been corrected.

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