1973 oil crisis
1973 oil crisis began in October 1973 when the members of the
Organization of Arab Petroleum Exporting Countries
Organization of Arab Petroleum Exporting Countries proclaimed an oil
embargo. The embargo was targeted at nations perceived as supporting
Israel during the
Yom Kippur War. The initial nations targeted were
Canada, Japan, the Netherlands, the
United Kingdom and the United
States with the embargo also later extended to Portugal,
South Africa. 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."
2.1 US oil production decline
2.3 End of the Bretton Woods currency accord
Yom Kippur War
5.1 Immediate economic effects
Price controls and rationing
5.2.1 United States
5.3 Conservation and reduction in demand
5.3.1 United States
Alternative energy sources
5.6 International relations
5.6.1 United States
5.6.4 Nonaligned nations
5.7 Automobile industry
5.7.1 Western Europe
5.7.2 United States
6 Decline of OPEC
7 See also
10 External links
The embargo was a response to American involvement in the 1973 Yom
Kippur War. Six days after
Syria launched a surprise
military campaign against Israel, the US supplied
Israel with arms. In
response to this, the Organization of
Countries (OAPEC, consisting of the
Arab members of
OPEC plus Egypt
and Syria) announced an oil embargo against Canada, Japan, the
United Kingdom and the United States.
The crisis had a major impact on international relations and created a
rift within NATO. Some European nations and
Japan sought to
disassociate themselves from
United States foreign policy in the
Middle East to avoid being targeted by the boycott.
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 to pull back from the
Sinai Peninsula and the Golan Heights. By January 18, 1974, US
Secretary of State
Henry Kissinger had negotiated an Israeli troop
withdrawal from parts of the Sinai Peninsula. The promise of a
negotiated settlement between
Syria was enough to convince
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
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 to have a persistent effect on the US economy.
The embargo's success demonstrated Saudi Arabia's diplomatic and
economic power. It was the largest oil exporter and a politically and
religiously conservative kingdom.
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
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
The Organization of the
Petroleum Exporting Countries (OPEC), which
then comprised 12 countries, including Iran, seven
(Iraq, Kuwait, Libya, Qatar,
Saudi Arabia and the United Arab
Emirates), plus Venezuela, Indonesia,
Nigeria and Ecuador, was formed
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.
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 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 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 was the
world's second-largest oil exporter and a close US ally. Weeks later,
the Shah of
Iran said in an interview: "Of course [the price of oil]
is going to rise... Certainly! And how!... You've [Western nations]
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 authorized Operation
Nickel Grass, a strategic airlift to deliver weapons and supplies to
Israel, after the
Soviet Union began sending arms to
Syria and Egypt.
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 [$2.2 billion] decision triggered a
Libya immediately announced it would
embargo oil shipments to the United States.
Saudi Arabia and the
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
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
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
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 War, Saudi king
Faisal and Egyptian president
Anwar Sadat meet in
Riyadh and secretly
negotiate an accord whereby the Arabs will use the "oil weapon" as
part of the military conflict.
Syria attack Israeli-occupied lands in the Sinai
Golan Heights on Yom Kippur, starting the 1973
Night of October 8—
Israel goes on full nuclear alert. Kissinger is
notified on the morning of October 9.
United States begins to resupply
OPEC negotiations with major oil companies to revise
Tehran price agreement fail.
United States initiates Operation Nickel Grass, a
strategic airlift to provide replacement weapons and supplies to
Israel. This followed similar
Soviet moves to supply the
October 16—Saudi Arabia, Iran, Iraq, Abu Dhabi,
Kuwait and Qatar
raise posted prices by 17% to $3.65 per barrel and announce production
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
Libya immediately proclaims an embargo on oil exports to
Saudi Arabia and other
Arab oil-producing states follow
the next day.
Yom Kippur War
Yom Kippur War ends.
Arab producers announce a 25% output cut. A further 5%
cut is threatened.
Arab embargo is extended to Portugal,
November 27—Nixon signs the Emergency
Petroleum Allocation Act
authorizing price, production, allocation and marketing controls.
Arab oil ministers agree to another five percent
production cut for non-friendly countries in January 1974.
Arab oil ministers cancel the January output cut. Saudi
Ahmed Zaki Yamani
Ahmed Zaki Yamani promises a ten percent
January 7–9, 1974—
OPEC decides to freeze prices until April 1.
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
February 12–14—Progress in Arab-Israeli disengagement triggers
discussion of oil strategy among the heads of state of Algeria, Egypt,
Syria and Saudi Arabia.
Israel withdraws the last of its troops from the west side
of the Suez Canal.
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.
1973–74 stock market crash ends.
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 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 states. The weapon
was aimed at the United States, Great Britain, Canada,
Japan and the
Netherlands. These target governments perceived that the intent was to
push them towards a more pro-
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 nationalized
1980 under the leadership of Saudi oil minister Ahmed Zaki Yamani. As
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
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
European Economic Community (EEC), the
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's government supported the Israelis during
the Six-Day War. His successor, Ted Heath, reversed this policy in
1970, calling for
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 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
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
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
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
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 and Ohio, non-striking
truckers were shot at by striking truckers, and in 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[clarification needed] in
1978. The price controls were not changed despite president Gerald
Ford's repeated requests to Congress.
Conservation and reduction in demand
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 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 October 27, 1975, with a break between October 27, 1974 and
February 23, 1975, when the country observed standard time. The move
spawned significant criticism because it forced many children to
travel to school before sunrise. The prior rules were restored in
Gas stations abandoned during the crisis were sometimes used for other
purposes. This station at Potlatch, Washington, was turned into a
The crisis prompted a call to conserve energy, most notably a campaign
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
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
Though not regulated by the new legislation, auto racing groups
voluntarily began conserving. In 1974, the
24 Hours of Daytona
24 Hours of Daytona was
NASCAR reduced all race distances by 10%; the 12 Hours
of Sebring race was cancelled.
In 1976, Congress created the
Weatherization Assistance Program
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
Israel was one of the few countries unaffected by the embargo, since
it could extract sufficient oil from the Sinai. But to supplement
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.
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
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.
Cold War policies suffered a major blow from the embargo.
They had focused on China and the
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
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
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
Saudi Arabia and Kuwait, and possibly
Abu Dhabi if
military action was decided upon. Although the
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
Western Europe began switching from pro-
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 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 to use British bases and
Cyprus to airlift resupplies to
Israel along with the rest of the
members of the European Community.
Canada shifted towards a more pro-
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
Arab position, despite its low dependence on Middle Eastern
Although lacking historical connections to the Middle East,
the country most dependent on
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 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 should withdraw from all of
the 1967 territories, advocating Palestinian self-determination, and
threatening to reconsider its policy toward
to accept these preconditions". By December 25,
considered an Arab-friendly state.
The oil embargo was announced roughly one month after a right-wing
military coup in
Chile led by General
Augusto Pinochet toppled
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.
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 of alternative energy sources,
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,
allied with the USSR, while Saudi Arabia, Turkey and
Israel) aligned with the US. Vacillations in alignment often resulted
in greater support from the respective superpowers.
Anwar Sadat became president of
Egypt in 1970, he dismissed
Soviet specialists in
Egypt and reoriented towards the US. Concerns
over economic domination from increased
Soviet oil production turned
into fears of military aggression after the 1979
Soviet invasion of
Afghanistan, turning the
Persian Gulf states towards the US for
security guarantees against
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 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 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 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 extremists during November 1979,
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
Saudi Arabia is a near absolute monarchy, an Arabic
speaking country, and has a
Sunni Muslim majority, while Persian
Iran since 1979 is an Islamist theocracy with a
majority, which explains the current hostility between Saudi Arabia
In November 2010, Wikileaks leaked confidential diplomatic cables
pertaining to the
United States and its allies which revealed that the
late Saudi King Abdullah urged the
United States to attack
order to destroy its potential nuclear weapons program, describing
Iran as "a snake whose head should be cut off without any
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The oil crisis sent a signal to the auto industry globally, which
changed many aspects of production and usage for decades to come.
After 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 and Fiat 127. By the end of the
decade, the market had expanded with the introduction of the Ford
Opel Kadett (sold as the
Vauxhall Astra in Great Britain),
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,
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.
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
Chevrolet Impala achieved no more than 15 highway miles
per gallon. In the fifteen years prior to the 1973 oil crisis,
gasoline prices in the U.S. had lagged well behind inflation.
The crisis reduced the demand for large cars. Japanese imports,
primarily the Toyota Corona, the Toyota Corolla, the Datsun B210, the
Datsun 510, the Honda Civic, the
Mitsubishi Galant (a captive
Chrysler sold as the Dodge Colt), the Subaru DL, and later
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, 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 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
Compact trucks were introduced, such as the
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,
Chrysler to introduce smaller and fuel-efficient models for
domestic sales. The
Dodge Omni /
Plymouth Horizon from Chrysler, the
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 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
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
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/Plymouth Gran
Chrysler New Yorker Fifth Avenue sedans).
Decline of OPEC
Further information: 1980s oil glut
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
1979 energy crisis
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, the North Sea, the Caspian Sea, and the Caucasus.
Exploration in the Caspian Basin and
Siberia became profitable.
Cooperation changed into a far more adversarial relationship as the
USSR increased its production. By 1980 the
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. Heavily populated,
impoverished countries, whose economies were largely dependent on
oil—including Mexico, Nigeria, Algeria, and Libya—did not prepare
for a market reversal that left them in sometimes desperate
When reduced demand and increased production glutted the world market
in the mid-1980s, oil prices plummeted and the cartel lost its unity.
Mexico (a non-member), Nigeria, and 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.
1967 oil embargo
1970s energy crisis
1990 oil price shock
2000s energy crisis
Hubbert peak theory
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Wikimedia Commons has media related to 1973 oil crisis.
Hakes, Jay (2008). 35 Years After the
Arab Oil Embargo, Journal of
Morgan, Oliver; Islam, Faisal (2001). Saudi dove in the oil slick, The
Guardian. Sheikh Ahmed Zaki Yamani, former oil minister of Saudi
Arabia, gives his personal account of the 1973 energy crisis.
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Them, Foreign Policy.
US Energy Information Administration (1998). 25th Anniversary of the
1973 Oil Embargo
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