A Detailed Analysis of the 1970s Oil Crisis: Causes and Consequences

This essay provides a comprehensive analysis of the 1970s oil crisis, beginning with the rising oil consumption and the decline in US domestic oil production. It delves into the causes of the crisis, including the OPEC embargo in response to the Yom Kippur War and Nixon's decision to take the US off the gold standard, which impacted oil prices. The essay explores the immediate and visible impacts of the crisis worldwide, including rising inflation, economic recession, and changes in consumer behavior and government policies. It discusses the crisis's influence on the automobile industry, international relations, and the development of alternative energy sources. The paper also examines the positive impacts on oil-producing nations and concludes by emphasizing the importance of regulating oil mining and trade to prevent economic instability and promote peace. The essay is supported by a bibliography of relevant sources.

OIL CRISIS OF THE 1970s
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Introduction
In 1970s, American oil intake in form of gasoline and other connected products were on
the rise. The USA had domestic oil production companies but their production was on the
decline due to the Arctic drilling controversy which has been there since 1977, American oil
fields are also not rich like Arabian oil fields. This has made the United States depend on
imported oil. Despite this Americans worried little about the spike of oil prices or oil shortages
since policymakers assured them of continued supply of oil from the Arab countries. The
policymaker argued that the Arab countries could not afford to miss the proceeds the United
States contributed to their economies. Despite this being true this attitude was tested in 1973
when the Embargo was imposed. The embargo imposed by the Arab oil giants proved American
policymakers wrong and it was clear that America needed oil more than the Arab countries
needed the revenue from oil sales. This was evident in the stock market, the American Wall
Street and its economy in whole.
In the early 1970s, the world oil consumption was on the rise in form of gasoline and
other oil products. There was a chain of energy crisis between 1970 and 1979 that was led by
Middle East issues but the crucial ones began in 1973 when the Arabian oil producers enforced
an Embargo. The choice to go against America and castigate the west in support of Israel in the
Yom Kipper war against Egypt. The targeted Nations were Canada, Japan, the United Kingdom,
the Netherlands, and the United States. The Embargo was later imposed on South Africa
Rhodesia and Portugal.1
1 . Alhajji, A. F. "The Oil Weapon: Past, Present, and Future." Oil & Gas Journal- Oil
and Gas News, Prices, Oil Drilling, Exploration and Production. Last modified 2018.
https://www.ogj.com/articles/print/volume-103/issue-17/general-interest/the-oil-
weapon-past-present-and-future.html.

1
As a result of the embargo the prices of crude oil to shoot sky high from three dollars a barrel to
twelve dollars by 1974. The price of petrol was bound to rise to make transport a nightmare and
more expensive. This led to a BRITAIN talk about rationing the coupons left over’s from the
Second World War. This was termed as the first oil shock which was later followed by a second
one in the 1979 crisis. 2
In 1971 president Nixon encouraged the Embargo by deciding to take the United States
off the gold standard. This resulted in other countries not being able to cash the U.S dollars in the
foreign exchange reserves for gold. Nixon did not honor 1944 Bretton woods pact. This move
made the prices of gold skyrocket. The history of Gold standards divulges that this was
unavoidable but Nixon’s deeds were unexpected and so sudden, this sent the value of the dollar
down as expected.3 The condensed worth of the dollar wounded OPEC countries because their
oil deals were valued in US DOLLAR. This meant that their proceeds reduced together with the
dollar. The price of imports that was denominated with further currencies also remained the same
or increased which was disastrous for US bargaining power.4 As a result of OPEC even thought
of pricing oil in Gold to prevent the proceeds from vanishing.
For the OPEC the last straw was when the United States of America resolved to back
Israel against Egypt during the Yom Kippur War. As a result on October 19, 1973, requested 2.2
2 . Amadeo, Kimberly. "The Truth About the 1973 Arab Oil Crisis." The Balance. Last
modified August 5, 2015. https://www.thebalance.com/opec-oil-embargo-causes-and-
effects-of-the-crisis-3305806.
3 . Baumeister, Christiane, and Lutz Kilian. "Forty years of oil price fluctuations: Why the
price of oil may still surprise us." Journal of Economic Perspectives 30, no. 1 (2016):
139-60.
4 Kilian, Lutz. Oil price volatility: Origins and effects. No. ERSD-2010-02. WTO Staff
Working Paper, 2010.

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billion dollars from Congress to aid crisis military aid for Israel. The Arab members in the OPEC
reacted by stopping their oil imports to the United States of America and other Israeli associates
which included Canada, The Netherlands, the United Kingdom, Portugal, and Rhodesia. This did
not last for long since Egypt, Syria, Israel declared a treaty on October 25, 1973, but the OPEC
did not comply till March 1974. By then oil prices had increased from 2.5 dollars barrel to 11.65
dollars a barrel.
The influence of the embargo were immediate and visible all over the world. The
conservative government led by Ted Health to struggle to cope with inflated food prices caused
by global shortages. This caused an inflation rate of up to 24%. The Labor government governed
by Harold Wilson took power but confronted a failure in proceeds and values of stock market .
5Burial oil a giant in the oil game had to be liberated by the England bank from Bankruptcy due
to the embargo. However, Britain was a distinguished champion during that time as it poured
cash into the North Sea region and this bought them the rights and capacity to be a net exporter.
This period was not good for the country’s already unstable industrial segment since the oil
charges were still up high.6 This hastened the gradual demise of Britain’s dying car industry
which was once a revenue earner due to the extra cost of production which was brought about by
the sudden change of oil prices.
5. Wearing, David. "Forty Years On, the Effects of the 1973-74 Oil Crisis Still Shape British
Foreign Policy in the Middle East." OpenDemocracy. Accessed November 7, 2018.
https://www.opendemocracy.net/ourkingdom/david-wearing/forty-years-on-effects-of-1973-74-
oil-crisis-still-shape-british-foreign-po
6 . BCcampus. "8.10 Oil and Gas and the New West – Canadian History: Post-
Confederation." BC Open Textbooks – Open Textbooks Adapted and Created by BC
Faculty. Last modified 2018. https://opentextbc.ca/postconfederation/chapter/oil-and-
gas-and-the-new-west/.

1
High oil charges fortified the shift to minor vehicles which led to the rise of Japanese
firms such as Toyota and Honda. They became prominent more dominant in the UK and to other
parts of the world since they used a considerably low amount of fuel than the previous models.
The Japanese who had established smaller and fuel- efficient cars were received in Britain and
with their experience, they resurrected the United Kingdom manufacturing industry.7 The oil
charge shock also altered the British relationships abroad that were concentrated on the risks
posed by Russian and China as a portion of the cold war.8
The oil crisis of the 1970s had a huge impact on the targeted nations. For example, the
citizens of these nations developed a negative attitude towards their leaders as they felt the
politicians were doing little to resolve the crisis. 9They felt that the leaders they had placed their
trust on were incapable and unprepared to come to their rescue. The lack of confidence of these
citizens in their leaders led to considerable panic and irrational actions. For example, Americans
began to send letters to the White House since they anticipated their president to do something
about the whole menace.10 Most of the members of the public heavily dependent on the oil for
almost half of their energy needs. Consequently, most of them broke into despair wondering
7 . Van de Ven, Dirk J., and Roger Fouquet. "Historical energy price shocks and their
changing effects on the economy." Energy Economics 62 (2017), 204-216.
doi:10.1016/j.eneco.2016.12.009.
8 . Elliott, Larry. "What 1973 Can Tell Us About Today's Economic Crisis." The Guardian.
Last modified November 30, 2017.
https://www.theguardian.com/business/2013/oct/06/what-1973-today-economic-crisis.
9 . Kitous, Alban, Bert Saveyn, Steve Gervais, Tobias Wiesenthal, and Antonio Soria.
"Analysis of the Iran oil embargo." JRC scientific and policy reports (2013)
10 . Mata, Johana. "The War, The Weapon and the Crisis: The Arab Oil Embargo of
1973." Not Even Past. Last modified October 31, 2018. https://notevenpast.org/war-
weapon-and-crisis-arab-oil-embargo-1973/.

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how they would survive if their leaders were not in a position to address the oil crisis. They got
concerned that they would have to deal with a high rate of oil prices considering the low supply
of any product results in an upsurge of prices.
Additionally, the oil crisis of the 1970s is blamed for causing a recession in the targeted
nations. For example, high prices of oil meant that the spending power of consumers had to
considerably reduce. Consumers did not spend much on good and services because uncertainty
about the future had been induced. Consequently, these nations found it hard to experience
economic growth. Nonetheless, it is argued that the 1973- 1975 recession in the United States
was not necessarily caused by the oil crisis but the policies the government put in place that time.
For example, Nixon’s wage-price control policy forced companies to keep wages high which
simply meant that companies had to lay off some employees to cut costs.11 Consequently, the
revenue the nation obtained from taxes levied on the incomes of individuals went down
considerably because the number of employed people reduced. Moreover, cutting on the number
of employees meant that companies could no longer function at their level best, thus the revenue
these companies would make significantly reduced. To that end, the government was also getting
little as far as revenue was concerned.
The oil crisis of the 1970s also leads to considerable developments. For example,
governments and individual consumers began to perceive the wisdom in conserving domestic oil
reserves. Additionally, the oil crisis compelled the automobile producers to generate competent
engines and more studies were carried out on alternative sources of energy including wind, solar,
and nuclear energy.12 President Ronald Wilson Reagan of the US chiefly advocated for the
11 . Garavini, Giuliano. "Completing Decolonization: The 1973 ‘Oil Shock’and the Struggle
for Economic Rights." The International History Review 33, no. 3 (2011): 473-487.
12

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alternative sources of energy thus signed several industry-friendly laws during his tenure in
response to the oil crisis of the 1970s. Moreover, in Canada, the office of energy conservation
was created and a series of confrontations emerged between the federal and provincial
governments regarding the management of oil resources of Alberta and where the paybacks of
the massive reserves ought to flow.13 In addition, the oil crisis led to the swing of American
politics to the right and brought an end to Galbraith’s conception of the American system. The
American government also created the strategic petroleum reserve due to the oil embargo. The
emergency stockpile of oil was developed for usage in crisis. Furthermore, the American
government introduced a rule that required the state speed limit to become 55 miles per hour to
preserve gas.
The Britain government, on the other hand, sealed an agreement with Saudi Arabia which
was described as a profound economic alliance.14 The agreement led to an increased supply of oil
into the City of London as the oil-producing state felt like it had a major stake in Britain and its
economy. 15Moreover, the recession that had been caused by the oil crisis rendered many people
jobless. To that end, the oil crisis can be said to have caused a change in the lives of the citizens
of the besieged nations. This is because they were accustomed to being employed, but the
recession had left them with no employment and a source of income. The oil crisis had also
13 Mitchell, Timothy. "The resources of economics: Making the 1973 Oil Crisis." Journal
of Cultural Economy 3, no. 2 (2010): 189-204.
14 . Hamilton, James D. Historical oil shocks. No. w16790. National Bureau of Economic
Research, 2011.
15 . Kilian, Lutz. "Oil price shocks: Causes and consequences." (2014).

1
forced individuals to wake up at dawn and wait in long lines at gas stations something they were
not used to doing.
Oil crisis of 1973 also impacted the oil-producing states in a positive way by providing
the oil producing countries with political and economic success. For example, the ban made it
feasible for the oil producing states to generate enormous fortune which empowered their
governments, armies, and economies. Additionally, the embargo compelled the US and some
European policies to alter their guidelines and rules toward the Arab -Israeli battle.16 However, a
good number of commentators argue that the ban failed to accomplish its political and economic
objectives. For instance, the United States and European countries still support Israel. Moreover,
western nations did not fulfill the OAPEC’s demands.17 For example, the OAPEC members
required the western nations to halt diplomatic affairs with Israel and offer military help to Arabs
to be added in the friendly nation list. However, the OAPEC members gave Britain, France, and
Spain this status even though they had not met the requirements. Japan was also formally
categorized as a friendly state without meeting the aforementioned requirements. The nation had
pledged to provide loans and technical assistance but it did not honor its promises.
Conclusion
16 . Ryssdal, Kai. "How an Oil Shortage in the 1970s Shaped Today's Economic Policy."
Marketplace. Last modified May 31, 2016.
https://www.marketplace.org/2016/05/31/economy/how-oil-shortage-1970s-shaped-
todays-economic-policy.
17 . Rapier, Robert. "How the 1973 Oil Embargo Still Affects US Energy Agenda
Today." OilPrice.com. Last modified October 24, 2013.
https://oilprice.com/Energy/Crude-Oil/How-the-1973-Oil-Embargo-Still-Affects-the-
US-Energy-Agenda-Today.html.

1
In conclusion, the Oil embargo caused a series of changes that are evident in today’s
word as discussed in the essay. Therefore oil mining and trade should be regulated appropriately
since it can cause economies to fall, wars, poverty, and other adverse effects that can be avoided
by advocating peace.
Bibliography
.

1
Alhajji, A. F. "The Oil Weapon: Past, Present, and Future." Oil & Gas Journal- Oil and Gas
News, Prices, Oil Drilling, Exploration and Production. Last modified 2018.
https://www.ogj.com/articles/print/volume-103/issue-17/general-interest/the-oil-
weapon-past-present-and-future.html.
Amadeo, Kimberly. "The Truth About the 1973 Arab Oil Crisis." The Balance. Last
modified August 5, 2015. https://www.thebalance.com/opec-oil-embargo-causes-and-
effects-of-the-crisis-3305806.
Baumeister, Christiane, and Lutz Kilian. "Forty years of oil price fluctuations: Why the price of
oil may still surprise us." Journal of Economic Perspectives 30, no. 1 (2016): 139-60.
BCcampus. "8.10 Oil and Gas and the New West – Canadian History: Post-Confederation." BC
Open Textbooks – Open Textbooks Adapted and Created by BC Faculty. Last modified
2018. https://opentextbc.ca/postconfederation/chapter/oil-and-gas-and-the-new-west/.
Elliott, Larry. "What 1973 Can Tell Us About Today's Economic Crisis." The Guardian. Last
modified November 30, 2017. https://www.theguardian.com/business/2013/oct/06/what-
1973-today-economic-crisis.
Garavini, Giuliano. "Completing Decolonization: The 1973 ‘Oil Shock’and the Struggle for
Economic Rights." The International History Review 33, no. 3 (2011): 473-487.
Hamilton, James D. Historical oil shocks. No. w16790. National Bureau of Economic Research,
2011.
Kilian, Lutz. "Oil price shocks: Causes and consequences." (2014).
Kilian, Lutz. Oil price volatility: Origins and effects. No. ERSD-2010-02. WTO Staff Working
Paper, 2010.
Kitous, Alban, Bert Saveyn, Steve Gervais, Tobias Wiesenthal, and Antonio Soria. "Analysis of
the Iran oil embargo." JRC scientific and policy reports (2013)
Mata, Johana. "The War, The Weapon and the Crisis: The Arab Oil Embargo of 1973." Not
Even Past. Last modified October 31, 2018. https://notevenpast.org/war-weapon-and-
crisis-arab-oil-embargo-1973/.
Mitchell, Timothy. "The resources of economics: Making the 1973 Oil Crisis." Journal of
Cultural Economy 3, no. 2 (2010): 189-204.
Rapier, Robert. "How the 1973 Oil Embargo Still Affects US Energy Agenda Today."
OilPrice.com. Last modified October 24, 2013. https://oilprice.com/Energy/Crude-
Oil/How-the-1973-Oil-Embargo-Still-Affects-the-US-Energy-Agenda-Today.html.

1
Ryssdal, Kai. "How an Oil Shortage in the 1970s Shaped Today's Economic Policy."
Marketplace. Last modified May 31, 2016.
https://www.marketplace.org/2016/05/31/economy/how-oil-shortage-1970s-shaped-todays-
economic-policy.
Van de Ven, Dirk J., and Roger Fouquet. "Historical energy price shocks and their changing
effects on the economy." Energy Economics 62 (2017), 204-216.
doi:10.1016/j.eneco.2016.12.009.
Wearing, David. "Forty Years On, the Effects of the 1973-74 Oil Crisis Still Shape British
Foreign Policy in the Middle East." OpenDemocracy. Accessed November 7, 2018.
https://www.opendemocracy.net/ourkingdom/david-wearing/forty-years-on-effects-
of-1973-74-oil-crisis-still-shape-british-foreign-po.