Economics Assignment Economic Events

Running Head: Major World’s Economic Events
Economic Events and how they have impacted the World Economies
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Major World’s Economic Events 2
Economic Events and how they have impacted the World Economies
The 1973 Oil Crisis
After the World War II, many countries experienced fast growth rate. America won the
battle and emerged to be a super power during this period. The period after the World War II is
referred to as the post war period (Bohanon, 2012). The 1973 oil crisis is one of the greater event
that marked the end of the Post war economic boom. The crisis resulted because there was a war
between the Arabs and the Israelites. The Arabs did not want the Israelites to have sufficient
supply of oil. The members of Organization of Petroleum Exporting Countries (OPEC) from
Arab imposed an embargo on the exportation of oil to Israel. All the nations that were claimed to
be helping Israel in the Yom Kippur War were the major targets for this embargo
(History.state.gov, 2017). These countries included; United States, Netherlands, Japan, United
Kingdom and Canada. It was however later extended to South Africa, Portugal and Rhodesia.
The main reason for the imposition of the oil embargo was that after there was a surprise launch
of military campaign against Israel by Syria and Egypt, the US supplied the Israelites with arms.
Not only did the oil embargo restrict the exportation of oil to targeted nations, it also did
introduce a cut in nations’ oil production level. The US economy had a strong dependence on
foreign oil and was thus severely strained during the 1973 Oil Embargo (Myre, 2013). President
Richard Nixon’s administration put more effort on an attempt to bring the embargo to an end but
the efforts were unsuccessful (History.state.gov, 2017). This made the US to have a need to
address the challenges that were being experienced from the overdependence on foreign oil. The
foreign oil corporations were demanded by the OPEC in the same year (1973) to raise the oil
price. In order to reduce the vulnerability of the U.S to oil imports, a new energy strategy was
announce by the Nixon administration on ways to boost the domestic oil production. Generally,
when there is a cut in oil production and the prices goes up, the importing economies feel the
squeeze. On the other hand, the exporting economies enjoy the high revenues raised since selling
at higher prices raise their revenues.
The oil prices rose sharply at the onset of the embargo and caused serious global
implications. The oil price started by doubling, it then quadrupled causing a rise in the consumer
costs and further a loss of stability in many world economies (Macalister, 2011). The US dollar
lost its value owing to this embargo and raised the prospective of this economy falling into a
recession. Some of the US associates had stockpiled oil supply to prevent the short term shortage

Major World’s Economic Events 3
(Japan and Europe). The US had sought to disassociate its relationship with US Middle East
policy; however, Japan and European countries needed it to help them in securing energy sources
because the high prices had put them in uncomfortable position. The US domestic oil reserves
were diminishing from the increased dependence on its consumption. It thus became more reliant
on oil importation than ever before which created a need to negotiate for the end to the embargo
since its economic situation was worsening. The negotiations however only resulted in its
international leverage fading. The situation was worsened by the fact that the embargo would
only end if the US succeeded to bring peace between Israel and the Arab countries. The crisis
came to an end after peace was achieved between Israel and Arab economies. It is this crisis that
resulted in the 1973-75 global recession.
This crisis was an important lesson to many world economies and raised the need to invest more
on domestic oil production rather than overdependence on oil importation since it was deemed to
create great challenges owing to the presence of market power. This has raised the global supply
of oil, the oil price is significantly lower. The US has increased its production to high levels such
that it is completely abandoning oil importation. The low oil price have driven growth in many
industrialized economies that are dependent on oil for production. However, the OPEC has
remained the sole controller of the largest world oil exportation.
The 2007-09 Global Financial Crisis (GFC)
The beginning of the GFC was believed to be on July 2007; a credit crunch is the main
impulse argued to be responsible for this crisis. There was a liquidity crisis which was caused by
the value of the sub-prime mortgages and this resulted in a loss in investor’s confidence. The US
Federal bank following this crisis injected huge capital into the financial markets (Davies, 2017).
The crises worsened in 2008 when the global stock market crashed and was so volatile. There
was increased uncertainty of the future as the consumers’ confidence became too low and there
were forced to tighten their belts.
The housing bubble in the US contributed much to this crisis. The US banking system
had lower regulation and they introduced the sub-prime loans where they advanced loan to even
the poor households who had no security back up (Amadeo, 2017). The housing market in the
US was performing poorly and the government had called upon the lending institutions to stop
discriminating on their loans lending on the basis of income level; this was like a form of
distributing income; the government acted as the security for the poor group and thus the