1973 oil crisis

In October 1973, the Organization of Arab Petroleum Exporting Countries said that it would stop sending oil to some countries. These were countries that had supported Israel. This happened during the 1973 Yom Kippur War. In that war, Egypt and Syria attacked Israel to get back land they had lost.

The embargo was led by Faisal of Saudi Arabia. It first affected Canada, Japan, the Netherlands, the United Kingdom, and the United States. Later, Portugal, Rhodesia, and South Africa were also included.

By March 1974, the embargo ended. But the price of oil had gone up a lot, from US$3 per barrel to nearly US$12 per barrel. This big jump in price caused an oil crisis. It also had big effects on the world’s economy and politics. This event is called the first oil shock. A second one happened in 1979 after the Iranian Revolution.

Background

Arab-Israeli conflict

After Israel became a country in 1948, there was conflict between Arabs and Israelis in the Middle East. The Suez Crisis happened when Egypt blocked a port and took control of a canal. This closed the canal for several months.

In 1967, Israel took land from Egypt, and Egypt closed the Suez Canal for eight years. After a war in 1973, the canal opened again in 1975. Some oil countries stopped sending oil to the United States because Richard Nixon asked for help for Israel. Oil prices stayed high even after this ended.

American oil production decline

By 1969, the United States could not make enough oil for all its cars and machines. The US brought oil from other countries, mostly from Venezuela and Canada. Rules limited how much oil the US could bring in from other places.

As oil became cheaper, people used less coal. The US depended more on oil, which made it risky if other countries stopped sending oil.

OPEC

The Organization of Petroleum Exporting Countries (OPEC) started in Baghdad in 1960. At first, it had five countries: Venezuela, Iraq, Saudi Arabia, Iran and Kuwait. More countries joined later.

In 1971, OPEC wanted to raise the price of oil. That same year, the United States changed its money system, which hurt oil countries. OPEC wanted to price oil differently.

Countdown to the October War

Some Arab oil countries had tried before to use oil for political reasons, but it did not work well. Saudi Arabia usually did not mix oil and politics, but other countries wanted to use oil as a tool.

In 1972, Egypt's leader Anwar Sadat wanted better ties with the United States. When this did not work, he prepared for war against Israel in 1973. Saudi Arabia said it would stop sending oil to the West if war happened. But the United States did not take this warning seriously.

The war and the "oil weapon"

On October 6, 1973, Egypt and Syria fought against Israel in a war called the Yom Kippur War. King Faisal of Saudi Arabia supported Egypt and offered money to help them.

The United States, led by President Richard Nixon, sent weapons to Israel. This made some Arab leaders angry.

At a meeting of oil-producing countries, the price of oil was raised. Some leaders wanted to stop selling oil to countries that supported Israel, but others thought raising the price would be better.

Later, Saudi Arabia and other Arab oil countries stopped selling oil to some nations that supported Israel. This included the United States, the United Kingdom, Japan, the Netherlands, and others. This caused oil prices to jump sharply and created problems for many countries that needed oil. The embargo lasted until March 1974.

The embargo had big effects on the world. Oil prices went up a lot, and many countries had to find new ways to save energy or look for other sources of power. It showed how important oil was in global politics.

Chronology

Further information: 1970–1979 world oil market chronology

In early 1973, money and markets caused problems. Later that year, leaders from Arab countries decided to use oil in their fight against Israel. On October 6, Egypt and Syria attacked Israel, starting a war. This led to big changes in how oil was sold around the world.

Arab countries that produced oil stopped selling oil to some nations that supported Israel. This included places like the United States, the United Kingdom, and Japan. The lack of oil caused big problems, with prices going up and people having to use less oil. Over time, the rules about oil changed, and by early 1974, the embargo against the United States was ended.

Effects

Further information: Nixon shock and 1973–1975 recession

The embargo caused big changes quickly. Oil prices went up a lot, from about $3 to nearly $12 per barrel by 1974. This made many things cost more.

The United States got a lot of its oil from Arab countries. When prices rose, it affected the whole world. Even countries like Iran and Venezuela asked for more money for their oil, which made prices go up everywhere.

The embargo ended in March 1974 after talks, but its effects lasted through the 1970s. The world's economy slowed down, and life became harder for many people. There was less fuel and higher costs for many things. This also changed the car industry, as people started to prefer smaller, more fuel-efficient cars.

Consequences

The oil crisis changed how countries got their energy. OPEC, the group of oil-producing countries, lost much of its power. By 1981, other countries made more oil than OPEC members. Saudi Arabia made more oil to lower prices, which hurt other oil-producing countries that needed higher prices to make money. Oil prices, which had been very high, dropped a lot during the 1980s.

Countries started looking for new places to find oil, such as Alaska, the North Sea, the Caspian Sea, and the Caucasus. They also began using other types of energy, like nuclear power and natural gas, which reduced the need for oil. This change hurt many oil-exporting countries, especially those that had not prepared for lower prices. Some countries faced big money problems as a result.

Graphs and charts

There are some useful graphs that show what happened with oil prices and exports around 1973. One graph shows oil prices from 1861 to 2015, with a big jump in 1973 and again during the 1979 energy crisis. The orange line on this graph shows prices adjusted for inflation.

Other graphs display changes in oil export revenues since 1972, U.S. oil production and imports, and the price of oil during the embargo. The last graph uses the nominal, not real price of oil.