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The 1973 OIL CRISIS began in October 1973 when the members of the Organization of Arab
Arab
Petroleum
Petroleum
Exporting Countries proclaimed an oil embargo . The embargo occurred in response to United States' support for Israel
Israel
during the Yom Kippur
Yom Kippur
War. By the end of the embargo in March 1974, the price of oil had risen from US$3 per barrel to nearly $12 globally; US prices were significantly higher. The embargo caused an oil crisis, or "shock", with many short- and long-term effects on global politics and the global economy. It was later called the "first oil shock", followed by the 1979 oil crisis , termed the "second oil shock."

CONTENTS

* 1 Summary

* 2 Background

* 2.1 US oil production decline * 2.2 OPEC * 2.3 End of the Bretton Woods currency accord * 2.4 Yom Kippur War
Yom Kippur War

* 3 Embargo * 4 Chronology

* 5 Effects

* 5.1 Immediate economic effects

* 5.2 Price controls and rationing

* 5.2.1 United States
United States

* 5.3 Conservation and reduction in demand

* 5.3.1 United States
United States

* 5.4 Alternative energy sources * 5.5 Macroeconomy

* 5.6 International relations

* 5.6.1 United States
United States
* 5.6.2 NATO
NATO
* 5.6.3 Japan
Japan
* 5.6.4 Nonaligned nations * 5.6.5 Arab
Arab
states

* 5.7 Automobile industry

* 5.7.1 Western Europe * 5.7.2 United States
United States

* 6 Decline of OPEC * 7 See also * 8 References * 9 Sources * 10 External links

SUMMARY

The embargo was a response to American involvement in the 1973 Yom Kippur War . Six days after Egypt
Egypt
and Syria
Syria
launched a surprise military campaign against Israel
Israel
, the US supplied Israel
Israel
with arms. In response to this, the Organization of Arab
Arab
Petroleum
Petroleum
Exporting Countries (OAPEC, consisting of the Arab
Arab
members of OPEC plus Egypt and Syria) announced an oil embargo against Canada
Canada
, Japan
Japan
, the Netherlands
Netherlands
, the United Kingdom
United Kingdom
and the United States
United States
.

The crisis had a major impact on international relations and created a rift within NATO
NATO
. Some European nations and Japan
Japan
sought to disassociate themselves from United States
United States
foreign policy in the Middle East to avoid being targeted by the boycott. Arab
Arab
oil producers linked any future policy changes to peace between the belligerents. To address this, the Nixon Administration began multilateral negotiations with the combatants. They arranged for Israel
Israel
to pull back from the Sinai Peninsula and the Golan Heights
Golan Heights
. By January 18, 1974, US Secretary of State Henry Kissinger
Henry Kissinger
had negotiated an Israeli troop withdrawal from parts of the Sinai Peninsula. The promise of a negotiated settlement between Israel
Israel
and Syria
Syria
was enough to convince Arab
Arab
oil producers to lift the embargo in March 1974. Graph of oil prices from 1861–2015, showing a sharp increase in 1973 and again during the 1979 energy crisis . The orange line is adjusted for inflation .

Independently, OAPEC members agreed to use their leverage over the world price-setting mechanism for oil to stabilize their incomes by raising world oil prices after the recent failure of negotiations with Western oil companies.

The embargo occurred at a time of rising petroleum consumption by industrialized countries and coincided with a sharp increase in oil imports by the world's largest oil consumer, the United States. In the aftermath, targeted countries initiated a wide variety of policies to contain their future dependency.

The 1973 "oil price shock", with the accompanying 1973–74 stock market crash , was regarded as the first discrete event since the Great Depression
Great Depression
to have a persistent effect on the US economy.

The embargo's success demonstrated Saudi Arabia
Saudi Arabia
's diplomatic and economic power. It was the largest oil exporter and a politically and religiously conservative kingdom.

BACKGROUND

US OIL PRODUCTION DECLINE

In 1970, US oil production started to decline, exacerbating the embargo's impact. Following this, Nixon named James E. Akins as US Ambassador to Saudi Arabia
Saudi Arabia
to audit US production capacity. The confidential results were alarming—no spare capacity was available and production could only decrease. USA oil production and imports. As shown, the import spike starts from the US production peak, and the embargo has little effect.

The oil embargo had little effect on overall supply, according to Akins.

OPEC

The Organization of the Petroleum
Petroleum
Exporting Countries (OPEC), which then comprised 12 countries, including Iran
Iran
, seven Arab
Arab
countries ( Iraq
Iraq
, Kuwait
Kuwait
, Libya
Libya
, Qatar
Qatar
, Saudi Arabia
Saudi Arabia
and the United Arab Emirates ), plus Venezuela
Venezuela
, Indonesia
Indonesia
, Nigeria
Nigeria
and Ecuador
Ecuador
, was formed at a Baghdad
Baghdad
conference on September 14, 1960. OPEC was organized to resist pressure by the "Seven Sisters " (seven large, Western oil companies) to reduce oil prices .

At first, OPEC operated as an informal bargaining unit for resource-rich third-world countries. OPEC confined its activities to gaining a larger share of the profits generated by oil companies and greater control over member production levels. In the early 1970s it began to exert economic and political strength; the oil companies and importing nations suddenly faced a unified exporter bloc.

END OF THE BRETTON WOODS CURRENCY ACCORD

On August 15, 1971, the United States
United States
unilaterally pulled out of the Bretton Woods Accord . The US abandoned the Gold Exchange Standard whereby the value of the dollar had been pegged to the price of gold and all other currencies were pegged to the dollar, whose value was left to "float" (rise and fall according to market demand). Shortly thereafter, Britain followed, floating the pound sterling . The other industrialized nations followed suit with their respective currencies. Anticipating that currency values would fluctuate unpredictably for a time, the industrialized nations increased their reserves (by expanding their money supplies ) in amounts far greater than before. The result was a depreciation of the dollar and other industrialized nations' currencies. Because oil was priced in dollars, oil producers' real income decreased. In September 1971, OPEC issued a joint communiqué stating that, from then on, they would price oil in terms of a fixed amount of gold.

This contributed to the "Oil Shock". After 1971, OPEC was slow to readjust prices to reflect this depreciation. From 1947 to 1967, the dollar price of oil had risen by less than two percent per year. Until the oil shock, the price had also remained fairly stable versus other currencies and commodities. OPEC ministers had not developed institutional mechanisms to update prices in sync with changing market conditions, so their real incomes lagged. The substantial price increases of 1973–1974 largely returned their prices and corresponding incomes to Bretton Woods levels in terms of commodities such as gold.

YOM KIPPUR WAR

On October 6, 1973, Syria
Syria
and Egypt, with support from other Arab nations, launched a surprise attack on Israel, on Yom Kippur. This renewal of hostilities in the Arab–Israeli conflict released the underlying economic pressure on oil prices. At the time, Iran
Iran
was the world's second-largest oil exporter and a close US ally. Weeks later, the Shah of Iran
Iran
said in an interview: "Of course is going to rise... Certainly! And how!... You've increased the price of the wheat you sell us by 300 percent, and the same for sugar and cement... You buy our crude oil and sell it back to us, refined as petrochemicals , at a hundred times the price you've paid us... It's only fair that, from now on, you should pay more for oil. Let's say ten times more."

On October 12, 1973, US president Richard Nixon
Richard Nixon
authorized Operation Nickel Grass , a strategic airlift to deliver weapons and supplies to Israel, after the Soviet
Soviet
Union began sending arms to Syria
Syria
and Egypt.

EMBARGO

In response to American aid to Israel, on October 16, 1973, OPEC raised the posted price of oil by 70%, to $5.11 a barrel. The following day, oil ministers agreed to the embargo, a cut in production by five percent from September's output and to continue to cut production in five percent monthly increments until their economic and political objectives were met. On October 19, Nixon requested Congress to appropriate $2.2 billion in emergency aid to Israel, including $1.5 billion in outright grants. George Lenczowski notes, "Military supplies did not exhaust Nixon's eagerness to prevent Israel's collapse...This decision triggered a collective OPEC response." Libya
Libya
immediately announced it would embargo oil shipments to the United States. Saudi Arabia
Saudi Arabia
and the other Arab
Arab
oil-producing states joined the embargo on October 20, 1973. At their Kuwait meeting, OAPEC proclaimed the embargo that curbed exports to various countries and blocked all oil deliveries to the US as a "principal hostile country".

Price increases were also imposed greatly. Since short-term oil demand is inelastic , immediate demand falls little when the price rises. Thus, market prices rose from $3 per barrel to $12 per barrel to reduce demand to the new, lower level of supply. The world financial system, which was already under pressure from the Bretton Woods breakdown, was set on a path of recessions and inflation that persisted until the early 1980s, with oil prices remaining elevated until 1986. 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
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 increased exploration, alternative energy research, energy conservation and more restrictive monetary policy to better fight inflation.

CHRONOLOGY

* January 1973—The 1973–74 stock market crash commences as a result of inflation pressure and the collapsing monetary system . * August 23, 1973—In preparation for the Yom Kippur
Yom Kippur
War, Saudi king Faisal and Egyptian president Anwar Sadat
Anwar Sadat
meet in Riyadh
Riyadh
and secretly negotiate an accord whereby the Arabs will use the "oil weapon" as part of the military conflict. * October 6— Egypt
Egypt
and Syria
Syria
attack Israeli -occupied lands in the Sinai Peninsula and Golan Heights
Golan Heights
on Yom Kippur
Yom Kippur
, starting the 1973 Arab–Israeli War . * Night of October 8— Israel
Israel
goes on full nuclear alert. Kissinger is notified on the morning of October 9. United States
United States
begins to resupply Israel. * October 8–10— OPEC negotiations with major oil companies to revise the 1971 Tehran
Tehran
price agreement fail. * October 12—The United States
United States
initiates Operation Nickel Grass , a strategic airlift to provide replacement weapons and supplies to Israel. This followed similar Soviet
Soviet
moves to supply the Arab
Arab
side. * October 16— Saudi Arabia
Saudi Arabia
, Iran, Iraq
Iraq
, Abu Dhabi
Abu Dhabi
, Kuwait
Kuwait
and Qatar
Qatar
raise posted prices by 17% to $3.65 per barrel and announce production cuts. * October 17—OAPEC oil ministers agree to use oil to influence the West's support of Israel. They recommended an embargo against non-complying states and mandated export cuts. * October 19—Nixon requests Congress to appropriate $2.2 billion in emergency aid to Israel, which triggers a collective Arab
Arab
response. Libya
Libya
immediately proclaims an embargo on oil exports to the US. Saudi Arabia
Saudi Arabia
and other Arab
Arab
oil-producing states follow the next day. * October 26—The Yom Kippur War
Yom Kippur War
ends. * November 5— Arab
Arab
producers announce a 25% output cut. A further 5% cut is threatened. * November 23—The Arab
Arab
embargo is extended to Portugal , Rhodesia and South Africa
South Africa
. * November 27—Nixon signs the Emergency Petroleum
Petroleum
Allocation Act authorizing price, production, allocation and marketing controls. * December 9— Arab
Arab
oil ministers agree to another five percent production cut for non-friendly countries in January 1974. * December 25— Arab
Arab
oil ministers cancel the January output cut. Saudi oil minister Ahmed Zaki Yamani promises a ten percent OPEC production rise. * January 7–9, 1974— OPEC decides to freeze prices until April 1. * January 18— Israel
Israel
signs a withdrawal agreement to pull back to the east side of the Suez Canal. * February 11—Kissinger unveils the Project Independence plan for US energy independence. * February 12–14—Progress in Arab-Israeli disengagement triggers discussion of oil strategy among the heads of state of Algeria
Algeria
, Egypt, Syria
Syria
and Saudi Arabia. * March 5— Israel
Israel
withdraws the last of its troops from the west side of the Suez Canal
Suez Canal
. * March 17— Arab
Arab
oil ministers, with the exception of Libya, announce the end of the US embargo. * May 31—Diplomacy by Kissinger produces a disengagement agreement on the Syrian front. * December 1974—The 1973–74 stock market crash ends.

EFFECTS

IMMEDIATE ECONOMIC EFFECTS

A man at a service station reads about the gasoline rationing system in an afternoon newspaper; a sign in the background states that no gasoline is available. 1974

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

This price increase had a dramatic effect on oil exporting nations, for the countries of the Middle East who had long been dominated by the industrial powers seen to have taken control of a vital commodity. The oil-exporting nations began to accumulate vast wealth.

Some of the income was dispensed in the form of aid to other underdeveloped nations whose economies had been caught between higher oil prices and lower prices for their own export commodities, amid shrinking Western demand. Much went for arms purchases that exacerbated political tensions, particularly in the Middle East. Saudi Arabia spent over 100 billion dollars in the ensuing decades for helping spread its fundamentalist interpretation of Islam, known as Wahhabism , throughout the world, via religious charities such al-Haramain Foundation , which often also distributed funds to violent Sunni
Sunni
extremist groups such as Al-Qaeda and the Taliban.

Control of oil became known as the "oil weapon." It came in the form of an embargo and production cutbacks from the Arab
Arab
states. The weapon was aimed at the United States, Great Britain, Canada, Japan
Japan
and the Netherlands. These target governments perceived that the intent was to push them towards a more pro- Arab
Arab
position. Production was eventually cut by 25%. However, the affected countries did not undertake dramatic policy changes.

In the United States, scholars argue that there already existed a negotiated settlement based on equality between both parties prior to 1973. The possibility that the Middle East could become another superpower confrontation with the USSR was of more concern to the US than oil. Further, interest groups and government agencies more worried about energy were no match for Kissinger's dominance. In the US production, distribution and price disruptions "have been held responsible for recessions, periods of excessive inflation, reduced productivity, and lower economic growth."

The embargo had a negative influence on the US economy by causing immediate demands to address the threats to U.S. energy security. On an international level, the price increases changed competitive positions in many industries, such as automobiles. Macroeconomic problems consisted of both inflationary and deflationary impacts. The embargo left oil companies searching for new ways to increase oil supplies, even in rugged terrain such as the Arctic. Finding oil and developing new fields usually required five to ten years before significant production. Gas stealers beware, 1974

OPEC-member states raised the prospect of nationalization of oil company holdings. Most notably, Saudi Arabia
Saudi Arabia
nationalized Aramco in 1980 under the leadership of Saudi oil minister Ahmed Zaki Yamani . As other OPEC nations followed suit, the cartel's income soared. Saudi Arabia undertook a series of ambitious five-year development plans. The biggest began in 1980, funded at $250 billion. Other cartel members also undertook major economic development programs.

US retail price gas prices rose from a national average of 38.5 cents in May 1973 to 55.1 cents in June 1974. State governments requested citizens not to put up Christmas lights . Oregon
Oregon
banned Christmas and commercial lighting altogether. Politicians called for a national gas rationing program. Nixon requested gasoline stations to voluntarily not sell gasoline on Saturday nights or Sundays; 90% of owners complied, which produced long queues.

The embargo was not uniform across Europe. Of the nine members of the European Economic Community (EEC), the Netherlands
Netherlands
faced a complete embargo, the UK 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), while the other six faced partial cutbacks. The UK had traditionally been an ally of Israel, and Harold Wilson
Harold Wilson
's government supported the Israelis during the Six-Day War. His successor, Ted Heath , reversed this policy in 1970, calling for Israel
Israel
to withdraw to its pre-1967 borders.

The EEC was unable to achieve a common policy during the first month of the War. It issued a statement on November 6, after the embargo and price rises had begun. It was widely viewed as pro- Arab
Arab
supporting the Franco-British line on the war. OPEC duly lifted its embargo from all EEC members. The price rises had a much greater impact in Europe than the embargo.

Despite being relatively unaffected by the embargo, the UK nonetheless faced an oil crisis of its own—a series of strikes by coal miners and railroad workers over the winter of 1973–74 became a major factor in the change of government . Heath asked the British to heat only one room in their houses over the winter. The UK, Germany, Italy, Switzerland and Norway banned flying, driving and boating on Sundays. Sweden rationed gasoline and heating oil. The Netherlands imposed prison sentences for those who used more than their ration of electricity.

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

PRICE CONTROLS AND RATIONING

United States

Price controls exacerbated the crisis in the US. The system limited the price of "old oil" (that which had already been discovered) while allowing newly discovered oil to be sold at a higher price to encourage investment. Predictably, old oil was withdrawn from the market, creating greater scarcity. The rule also discouraged development of alternative energies . The rule had been intended to promote oil exploration . Scarcity was addressed by rationing (as in many countries). Motorists faced long lines at gas stations beginning in summer 1972 and increasing by summer 1973.

In 1973, Nixon named William E. Simon as the first Administrator of the Federal Energy Office, a short-term organization created to coordinate the response to the embargo. Simon allocated states the same amount of domestic oil for 1974 that each had consumed in 1972, which worked for states whose populations were not increasing. In other states, lines at gasoline stations were common. The American Automobile Association reported that in the last week of February 1974, 20% of American gasoline stations had no fuel. Oregon gasoline dealers displayed signs explaining the flag policy in the winter of 1973–74

Odd–even rationing allowed vehicles with license plates having an odd number as the last digit (or a vanity license plate ) to buy gas only on odd-numbered days of the month, while others could buy only on even-numbered days.

In some states, a three-color flag system was used to denote gasoline availability at service stations—green for unrationed availability, yellow for restricted/rationed sales and red for out of stock. Gasoline ration stamps printed by the Bureau of Engraving and Printing in 1974, but not used.

Rationing led to violent incidents, when truck drivers chose to strike for two days in December 1973 over the limited supplies Simon had allocated for their industry. In Pennsylvania
Pennsylvania
and Ohio
Ohio
, non-striking truckers were shot at by striking truckers, and in Arkansas
Arkansas
, trucks of non-strikers were attacked with bombs .

America had controlled the price of natural gas since the 1950s. With the inflation of the 1970s, the price was too low to encourage the search for new reserves. America's natural gas reserves dwindled from 237 trillion in 1974 to 203 trillion in 1978. The price controls were not changed despite president Gerald Ford 's repeated requests to Congress.

CONSERVATION AND REDUCTION IN DEMAND

United States

To help reduce consumption, in 1974 a national maximum speed limit of 55 mph (about 88 km/h) was imposed through the Emergency Highway Energy Conservation Act . Development of the Strategic Petroleum Reserve began in 1975, and in 1977 the cabinet-level Department of Energy was created, followed by the National Energy Act of 1978. On November 28, 1995, Bill Clinton
Bill Clinton
signed the National Highway Designation Act , ending the federal 55 mph (89 km/h) speed limit , allowing states to restore their prior maximum speed limit.

Year-round daylight saving time was implemented from January 6, 1974, to February 23, 1975. The move spawned significant criticism because it forced many children to travel to school before sunrise. The prior rules 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.

The crisis prompted a call to conserve energy, most notably a campaign by the Advertising Council using the tagline "Don't Be Fuelish". Many newspapers carried advertisements featuring cut-outs that could be attached to light switches, reading "Last Out, Lights Out: Don't Be Fuelish."

By 1980, domestic luxury cars with a 130-inch (3.3 m) wheelbase and gross weights averaging 4,500 pounds (2,041 kg) were no longer made. The automakers had begun phasing out the traditional front engine/rear wheel drive layout in compact cars in favor of lighter front engine/front wheel drive designs. A higher percentage of cars offered more efficient 4-cylinder engines. Domestic auto makers also began offering more fuel efficient diesel powered passenger cars as well.

Though not regulated by the new legislation, auto racing groups voluntarily began conserving. In 1974, the 24 Hours of Daytona was cancelled and NASCAR
NASCAR
reduced all race distances by 10%; the 12 Hours of Sebring race was cancelled.

In 1976, Congress created the Weatherization Assistance Program to help low-income homeowners and renters reduce their demand for heating and cooling through better insulation .

ALTERNATIVE ENERGY SOURCES

A woman uses wood in a fireplace for heat. A newspaper headline before her tells of the community's lack of heating oil.

The energy crisis led to greater interest in renewable energy , nuclear power and domestic fossil fuels. According to Peter Grossman, American energy policies since the crisis have been dominated by crisis-mentality thinking, promoting expensive quick fixes and single-shot solutions that ignore market and technology realities. He wrote that instead of providing stable rules that support basic research while leaving plenty of scope for entrepreneurship and innovation, congresses and presidents have repeatedly backed policies which promise solutions that are politically expedient, but whose prospects are doubtful.

The Brazilian government implemented its " Proálcool " (pro-alcohol) project in 1975 that mixed ethanol with gasoline for automotive fuel.

Israel
Israel
was one of the few countries unaffected by the embargo, since it could extract sufficient oil from the Sinai. But to supplement Israel
Israel
's over-taxed power grid, Harry Zvi Tabor , the father of Israel\'s solar industry , developed the prototype for a solar water heater now used in over 90% of Israeli homes.

MACROECONOMY

The crisis was a major factor in shifting Japan's economy away from oil-intensive industries. Investment shifted to industries such as electronics . Japanese auto makers also benefited from the crisis. Increased fuel costs allowed their small, fuel-efficient models to gain market share from the "gas-guzzling" American competition. This triggered a drop in American auto sales that lasted into the 1980s.

Western central banks decided to sharply cut interest rates to encourage growth, deciding that inflation was a secondary concern. Although this was the orthodox macroeconomic prescription at the time, the resulting stagflation surprised economists and central bankers. The policy is now considered by some to have deepened and lengthened the adverse effects of the embargo. Recent research claims that in the period after 1985 the economy became more resilient to energy price increases.

The price shock created large current account deficits in oil-importing economies. A petrodollar recycling mechanism was created, through which OPEC surplus funds were channeled through the capital markets to the West to finance the current account deficits. The functioning of this mechanism required the relaxation of capital controls in oil-importing economies. It marked the beginning of an exponential growth of Western capital markets .

Many in the public remain suspicious of oil companies, believing they profiteered, or even colluded with OPEC. In 1974, seven of the fifteen top Fortune 500 companies were oil companies, falling to four in 2014.

INTERNATIONAL RELATIONS

United States

America's Cold War policies suffered a major blow from the embargo. They had focused on China and the Soviet
Soviet
Union, but the latent challenge to US hegemony coming from the third world became evident.

In 2004, declassified documents revealed that the U.S. was so distraught by the rise in oil prices and being challenged by under-developed countries that they briefly considered military action to forcibly seize Middle Eastern oilfields in late 1973. Although no explicit plan was mentioned, a conversation between U.S. Secretary of Defense James Schlesinger and British Ambassador to the United States Lord Cromer revealed Schlesinger had told him that "it was no longer obvious to him that the U.S. could not use force." British Prime Minister Edward Heath was so worried by this prospect that he ordered a British intelligence estimate of U.S. intentions, which concluded America "might consider it could not tolerate a situation in which the U.S. and its allies were at the mercy of a small group of unreasonable countries," and that they would prefer a rapid operation to seize oilfields in Saudi Arabia
Saudi Arabia
and Kuwait, and possibly Abu Dhabi
Abu Dhabi
in military action was decided upon. Although the Soviet
Soviet
response to such an act would likely not involve force, intelligence warned "the American occupation would need to last 10 years as the West developed alternative energy sources, and would result in the ‘total alienation’ of the Arabs and much of the rest of the Third World."

NATO

Western Europe began switching from pro- Israel
Israel
to more pro-Arab policies. This change strained the Western alliance. The US, 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 Israel. The percentage of U.S. oil which comes from the nations bordering the Persian Gulf
Persian Gulf
remained steady over the decades, with a figure of a little more than 10% in 2008.

With the embargo in place, many developed countries altered their policies regarding the Arab-Israeli conflict. These included the UK, which refused to allow the United States
United States
to use British bases and Cyprus
Cyprus
to airlift resupplies to Israel
Israel
along with the rest of the members of the European Community .

Canada
Canada
shifted towards a more pro- Arab
Arab
position after displeasure was expressed towards Canada's mostly neutral position. "On the other hand, after the embargo the Canadian government moved quickly indeed toward the Arab
Arab
position, despite its low dependence on Middle Eastern oil".

Japan

Although lacking historical connections to the Middle East, Japan
Japan
was the country most dependent on Arab
Arab
oil. 71% of its imported oil came from the Middle East in 1970. On November 7, 1973, the Saudi and Kuwaiti governments declared Japan
Japan
a "nonfriendly" country to encourage it to change its noninvolvement policy. It received a 5% production cut in December, causing a panic. On November 22, Japan issued a statement "asserting that Israel
Israel
should withdraw from all of the 1967 territories, advocating Palestinian self-determination, and threatening to reconsider its policy toward Israel
Israel
if Israel
Israel
refused to accept these preconditions". By December 25, Japan
Japan
was considered an Arab-friendly state.

Nonaligned Nations

The oil embargo was announced roughly one month after a right-wing military coup in Chile
Chile
led by General Augusto Pinochet
Augusto Pinochet
toppled socialist president Salvador Allende on September 11, 1973. The response of the Nixon administration was to propose doubling arms sales. As a consequence, an opposing Latin American bloc was organized and financed in part by Venezuelan oil revenues, which quadrupled between 1970 and 1975.

A year after the start of the embargo, the UN's nonaligned bloc passed a resolution demanding the creation of a "New International Economic Order " under which nations within the global South would receive a greater share of benefits derived from the exploitation of southern resources and greater control over their self-development.

Arab
Arab
States

Prior to the embargo, the geo-political competition between the Soviet
Soviet
Union and the United States, in combination with low oil prices that hindered the necessity and feasibility of alternative energy sources, presented the Arab
Arab
States with financial security, moderate economic growth, and disproportionate international bargaining power.

The oil shock disrupted the status quo relationships between Arab countries and the US and USSR. At the time, Egypt, Syria
Syria
and Iraq
Iraq
were allied with the USSR, while Saudi Arabia, Turkey and Iran
Iran
(plus Israel) aligned with the US. Vacillations in alignment often resulted in greater support from the respective superpowers.

When Anwar Sadat
Anwar Sadat
became president of Egypt
Egypt
in 1970, he dismissed Soviet
Soviet
specialists in Egypt
Egypt
and reoriented towards the US. Concerns over economic domination from increased Soviet
Soviet
oil production turned into fears of military aggression after the 1979 Soviet
Soviet
invasion of Afghanistan , turning the Persian Gulf
Persian Gulf
states towards the US for security guarantees against Soviet
Soviet
military action.

The USSR's invasion of Afghanistan was only one sign of insecurity in the region, also marked by increased American weapons sales, technology, and outright military presence. Saudi Arabia
Saudi Arabia
and Iran became increasingly dependent on American security assurances to manage both external and internal threats, including increased military competition between them over increased oil revenues. Both states were competing for preeminence in the Persian Gulf
Persian Gulf
and using increased revenues to fund expanded militaries. By 1979, Saudi arms purchases from the US exceeded five times Israel's.

In the wake of the 1979 Iranian Revolution
Iranian Revolution
the Saudis were forced to deal with the prospect of internal destabilization via the radicalism of Islamism , a reality which would quickly be revealed in the Grand Mosque seizure in Mecca by Wahhabi
Wahhabi
extremists during November 1979, and a Shiite
Shiite
Muslim revolt in the oil rich Al-Hasa region of Saudi Arabia in December of the same year, which was known as the 1979 Qatif Uprising . Saudi Arabia
Saudi Arabia
is a near absolute monarchy, an Arabic speaking country, and has a Sunni
Sunni
Muslim majority, while Persian speaking Iran
Iran
since 1979 is an Islamist theocracy with a Shiite
Shiite
Muslim majority, which explains the current hostility between Saudi Arabia and Iran.

In November 2010, Wikileaks leaked confidential diplomatic cables pertaining to the United States
United States
and its allies which revealed that the late Saudi King Abdullah urged the United States
United States
to attack Iran
Iran
in order to destroy its potential nuclear weapons program, describing Iran
Iran
as "a snake whose head should be cut off without any procrastination".

AUTOMOBILE INDUSTRY

_ This section MAY STRAY FROM THE TOPIC OF THE ARTICLE. Please help improve this section or discuss this issue on the talk page . (March 2016)_

The oil crisis sent a signal to the auto industry globally, which changed many aspects of production and usage for decades to come.

Western Europe

After World War II
World War II
, most West European countries taxed motor fuel to limit imports, and as a result most cars made in Europe were smaller and more economical than their American counterparts. By the late 1960s increasing incomes supported rising car sizes.

The oil crisis pushed West European car buyers away from larger, less economical cars. The most notable result of this transition was the rise in popularity of compact hatchbacks . The only notable small hatchbacks built in Western Europe before the oil crisis were the Peugeot 104 , Renault 5
Renault 5
and Fiat 127 . By the end of the decade, the market had expanded with the introduction of the Ford Fiesta
Ford Fiesta
, Opel Kadett (sold as the Vauxhall Astra in Great Britain), Chrysler
Chrysler
Sunbeam and Citroën Visa .

Buyers looking for larger cars were increasingly drawn to medium-sized hatchbacks. Virtually unknown in Europe in 1973, by the end of the decade they were gradually replacing saloons as the mainstay of this sector. Between 1973 and 1980, medium-sized hatchbacks were launched across Europe: the Chrysler/Simca Horizon , Fiat Ritmo (Strada in the UK), Ford Escort MK3 , Renault 14 , Volvo 340 / 360 , Opel Kadett
Opel Kadett
, and Volkswagen Golf .

These cars were considerably more economical than the traditional saloons they were replacing, and attracted buyers who traditionally bought larger vehicles. Some 15 years after the oil crisis, hatchbacks dominated most European small and medium car markets, and had gained a substantial share of the large family car market.

United States

See also: Malaise era See also: Automotive industry in the United States

Before the energy crisis, large, heavy, and powerful cars were popular. By 1971, the standard engine in a Chevrolet Caprice was a 400-cubic inch (6.5 liter) V8. The wheelbase of this car was 121.5 inches (3,090 mm), and _Motor Trend_'s 1972 road test of the similar Chevrolet Impala
Chevrolet Impala
achieved no more than 15 highway miles per gallon.

The crisis reduced the demand for large cars. Japanese imports, primarily the Toyota Corona
Toyota Corona
, the Toyota Corolla
Toyota Corolla
, the Datsun B210 , the Datsun 510 , the Honda Civic , the Mitsubishi Galant
Mitsubishi Galant
(a captive import from Chrysler
Chrysler
sold as the Dodge Colt
Dodge Colt
), the Subaru DL , and later the Honda Accord
Honda Accord
all had four cylinder engines that were more fuel efficient than the typical American V8 and six cylinder engines . Japanese imports became mass-market leaders with unibody construction and front-wheel drive, which became de facto standards .

From Europe, the Volkswagen Beetle , the Volkswagen Fastback , the Renault 8 , the Renault LeCar , and the Fiat Brava were successful. Detroit responded with the Ford Pinto
Ford Pinto
, the Ford Maverick , the Chevrolet Vega , the Chevrolet Nova , the Plymouth Valiant and the Plymouth Volaré . American Motors sold its homegrown Gremlin , Hornet and Pacer models.

Some buyers lamented the small size of the first Japanese compacts, and both Toyota and Nissan (then known as Datsun) introduced larger cars such as the Toyota Corona
Toyota Corona
Mark II , the Toyota Cressida , the Mazda 616 and Datsun 810 , which added passenger space and amenities such as air conditioning, power steering, AM-FM radios, and even power windows and central locking without increasing the price of the vehicle. A decade after the 1973 oil crisis, Honda, Toyota and Nissan, affected by the 1981 voluntary export restraints , opened US assembly plants and established their luxury divisions (Acura, Lexus and Infiniti, respectively) to distinguish themselves from their mass-market brands.

Compact trucks were introduced, such as the Toyota Hilux
Toyota Hilux
and the Datsun Truck , followed by the Mazda Truck (sold as the Ford Courier ), and the Isuzu-built Chevrolet LUV . Mitsubishi rebranded its Forte as the Dodge D-50 a few years after the oil crisis. Mazda, Mitsubishi and Isuzu had joint partnerships with Ford, Chrysler, and GM, respectively. Later the American makers introduced their domestic replacements (Ford Ranger, Dodge Dakota and the Chevrolet S10/GMC S-15), ending their captive import policy.

An increase in imported cars into North America forced General Motors, Ford and Chrysler
Chrysler
to introduce smaller and fuel-efficient models for domestic sales. The Dodge Omni / Plymouth Horizon from Chrysler, the Ford Fiesta
Ford Fiesta
and the Chevrolet Chevette all had four-cylinder engines and room for at least four passengers by the late 1970s. By 1985, the average American vehicle moved 17.4 miles per gallon, compared to 13.5 in 1970. The improvements stayed even though the price of a barrel of oil remained constant at $12 from 1974 to 1979. Sales of large sedans for most makes (except Chrysler
Chrysler
products) recovered within two model years of the 1973 crisis. The Cadillac DeVille and Fleetwood , Buick Electra , Oldsmobile 98 , Lincoln Continental , Mercury Marquis , and various other luxury oriented sedans became popular again in the mid-1970s. The only full-size models that did not recover were lower price models such as the Chevrolet Bel Air
Chevrolet Bel Air
and Ford Galaxie 500 . Slightly smaller models such as the Oldsmobile Cutlass , Chevrolet Monte Carlo , Ford Thunderbird and various others sold well.

Economical imports succeeded alongside heavy, expensive vehicles. In 1976 Toyota sold 346,920 cars (average weight around 2,100 lbs), while Cadillac sold 309,139 cars (average weight around 5,000 lbs).

Federal safety standards, such as NHTSA Federal Motor Vehicle Safety Standard 215 (pertaining to safety bumpers), and compacts like the 1974 Mustang I were a prelude to the DOT "downsize" revision of vehicle categories. By 1977, GM's full-sized cars reflected the crisis. By 1979, virtually all "full-size" American cars had shrunk, featuring smaller engines and smaller outside dimensions. Chrysler ended production of their full-sized luxury sedans at the end of the 1981 model year, moving instead to a full front-wheel drive lineup for 1982 (except for the M-body Dodge Diplomat
Dodge Diplomat
/ Plymouth Gran Fury and Chrysler
Chrysler
New Yorker Fifth Avenue sedans).

DECLINE OF OPEC

Further information: 1980s oil glut
1980s oil glut
Fluctuations of OPEC net oil export revenues since 1972

OPEC soon lost its preeminent position, and in 1981, its production was surpassed by that of other countries. Additionally, its own member nations were divided. Saudi Arabia, trying to recover market share, increased production, pushing prices down, shrinking or eliminating profits for high-cost producers. The world price, which had peaked during the 1979 energy crisis at nearly $40 per barrel, decreased during the 1980s to less than $10 per barrel. Adjusted for inflation, oil briefly fell back to pre-1973 levels. This "sale" price was a windfall for oil-importing nations, both developing and developed.

The embargo encouraged new venues for energy exploration including Alaska
Alaska
, the North Sea , the Caspian Sea , and the Caucasus
Caucasus
. Exploration in the Caspian Basin and Siberia
Siberia
became profitable. Cooperation changed into a far more adversarial relationship as the USSR increased its production. By 1980 the Soviet
Soviet
Union had become the world's largest producer.

Part of the decline in prices and economic and geopolitical power of OPEC came from the move to alternate energy sources. OPEC had relied on price inelasticity to maintain high consumption, but had underestimated the extent to which conservation and other sources of supply would eventually reduce demand. Electricity generation from nuclear power and natural gas , home heating from natural gas, and ethanol -blended gasoline all reduced the demand for oil.

The drop in prices presented a serious problem for oil-exporting countries in northern Europe and the Persian Gulf
Persian Gulf
. Heavily populated, impoverished countries, whose economies were largely dependent on oil—including Mexico
Mexico
, Nigeria
Nigeria
, Algeria
Algeria
, and Libya
Libya
—did not prepare for a market reversal that left them in sometimes desperate situations.

When reduced demand and increased production glutted the world market in the mid-1980s, oil prices plummeted and the cartel lost its unity. Mexico
Mexico
(a non-member), Nigeria, and Venezuela
Venezuela
, whose economies had expanded in the 1970s, faced near-bankruptcy, and even Saudi Arabian economic power was significantly weakened. The divisions within OPEC made concerted action more difficult. As of 2015, OPEC had never approached its earlier dominance.

SEE ALSO

* Energy portal

* 1967 oil embargo * 1970s energy crisis * 1990 oil price shock
1990 oil price shock
* 2000s energy crisis * Hubbert peak theory * Supply shock * Petrodollar recycling
Petrodollar recycling

REFERENCES

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SOURCES

* Ammann, Daniel (2009). _The King of Oil: The Secret Lives of Marc Rich _. New York: St. Martin\'s Press . ISBN 978-0-312-57074-3 . * Blinder, Alan S. (1979). _Economic Policy and the Great Stagflation_. New York: Academic Press. * Eckstein, Otto (1979). _The Great Recession_. Amsterdam: North-Holland. * Frum, David (2000). _How We Got Here: The '70s_. New York: Basic Books . ISBN 978-0-465-04195-4 . * Ikenberry, G. John (1986). "The Irony of State Strength: Comparative Responses to the Oil Shocks in the 1970s". _International Organization_. 40 (1): 105–137. doi :10.1017/S0020818300004495 . * Lenczowski, George (1990). _American Presidents and the Middle East_. Duke University Press . ISBN 978-0-8223-0972-7 . * Licklider, Roy (1988). "The Power of Oil: The Arab
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Oil Weapon and the Netherlands, the United Kingdom, Canada, Japan, and the United States". _International Studies Quarterly_. 32 (2): 205–226. JSTOR 2600627 . doi :10.2307/2600627 . * Masouros, Pavlos E. (2013). _Corporate Law and Economic Stagnation: How Shareholder Value and Short-termism Contribute to the Decline of the Western Economies_. Eleven International Publishing. * Rupert, Mark E.; Rapkin, David P. (1985). "The Erosion of U.S. Leadership Capabilities", in Johnson, Paul M.; Thompson, William R., eds. _Rhythms in Politics and Economics_. New York: Praeger. * Yergin, Daniel (2008). _The Prize: The Epic Quest for Oil, Money, and Power _. New York: Simon and Schuster.

EXTERNAL LINKS

_ Wikimedia Commons has media related to 1973 OIL CRISIS _.

* Hakes, Jay (2008). 35 Years After the Arab
Arab
Oil