1973 oil crisis

1973 oil crisis

Overview
The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries
Organization of Arab Petroleum Exporting Countries
The Organization of Arab Petroleum Exporting Countries is a multi-governmental organization headquartered in Kuwait which coordinates energy policies between oil–producing Arab nations, and whose main purpose is developmental.-History:...

 or the OAPEC (consisting of the Arab
Arab
Arab people, also known as Arabs , are a panethnicity primarily living in the Arab world, which is located in Western Asia and North Africa. They are identified as such on one or more of genealogical, linguistic, or cultural grounds, with tribal affiliations, and intra-tribal relationships playing...

 members of OPEC
OPEC
OPEC is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings...

, plus Egypt
Egypt
Egypt , officially the Arab Republic of Egypt, Arabic: , is a country mainly in North Africa, with the Sinai Peninsula forming a land bridge in Southwest Asia. Egypt is thus a transcontinental country, and a major power in Africa, the Mediterranean Basin, the Middle East and the Muslim world...

, Syria
Syria
Syria , officially the Syrian Arab Republic , is a country in Western Asia, bordering Lebanon and the Mediterranean Sea to the West, Turkey to the north, Iraq to the east, Jordan to the south, and Israel to the southwest....

 and Tunisia
Tunisia
Tunisia , officially the Tunisian RepublicThe long name of Tunisia in other languages used in the country is: , is the northernmost country in Africa. It is a Maghreb country and is bordered by Algeria to the west, Libya to the southeast, and the Mediterranean Sea to the north and east. Its area...

) proclaimed an oil embargo
Embargo
An embargo is the partial or complete prohibition of commerce and trade with a particular country, in order to isolate it. Embargoes are considered strong diplomatic measures imposed in an effort, by the imposing country, to elicit a given national-interest result from the country on which it is...

. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war
Yom Kippur War
The Yom Kippur War, Ramadan War or October War , also known as the 1973 Arab-Israeli War and the Fourth Arab-Israeli War, was fought from October 6 to 25, 1973, between Israel and a coalition of Arab states led by Egypt and Syria...

. It lasted until March 1974. With the U.S. actions seen as initiating the oil embargo and the long term possibility of high oil prices, disrupted supply and recession, a strong rift was created within NATO.
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The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries
Organization of Arab Petroleum Exporting Countries
The Organization of Arab Petroleum Exporting Countries is a multi-governmental organization headquartered in Kuwait which coordinates energy policies between oil–producing Arab nations, and whose main purpose is developmental.-History:...

 or the OAPEC (consisting of the Arab
Arab
Arab people, also known as Arabs , are a panethnicity primarily living in the Arab world, which is located in Western Asia and North Africa. They are identified as such on one or more of genealogical, linguistic, or cultural grounds, with tribal affiliations, and intra-tribal relationships playing...

 members of OPEC
OPEC
OPEC is an intergovernmental organization of twelve developing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. OPEC has maintained its headquarters in Vienna since 1965, and hosts regular meetings...

, plus Egypt
Egypt
Egypt , officially the Arab Republic of Egypt, Arabic: , is a country mainly in North Africa, with the Sinai Peninsula forming a land bridge in Southwest Asia. Egypt is thus a transcontinental country, and a major power in Africa, the Mediterranean Basin, the Middle East and the Muslim world...

, Syria
Syria
Syria , officially the Syrian Arab Republic , is a country in Western Asia, bordering Lebanon and the Mediterranean Sea to the West, Turkey to the north, Iraq to the east, Jordan to the south, and Israel to the southwest....

 and Tunisia
Tunisia
Tunisia , officially the Tunisian RepublicThe long name of Tunisia in other languages used in the country is: , is the northernmost country in Africa. It is a Maghreb country and is bordered by Algeria to the west, Libya to the southeast, and the Mediterranean Sea to the north and east. Its area...

) proclaimed an oil embargo
Embargo
An embargo is the partial or complete prohibition of commerce and trade with a particular country, in order to isolate it. Embargoes are considered strong diplomatic measures imposed in an effort, by the imposing country, to elicit a given national-interest result from the country on which it is...

. This was "in response to the U.S. decision to re-supply the Israeli military" during the Yom Kippur war
Yom Kippur War
The Yom Kippur War, Ramadan War or October War , also known as the 1973 Arab-Israeli War and the Fourth Arab-Israeli War, was fought from October 6 to 25, 1973, between Israel and a coalition of Arab states led by Egypt and Syria...

. It lasted until March 1974. With the U.S. actions seen as initiating the oil embargo and the long term possibility of high oil prices, disrupted supply and recession, a strong rift was created within NATO. Additionally, some European nations and Japan sought to disassociate themselves from the U.S. Middle East policy. Arab oil producers had also linked the end of the embargo with successful U.S. efforts to create peace in the Middle East, which complicated the situation. To address these developments, the Nixon Administration began parallel negotiations with both Arab oil producers to end the embargo, and with Egypt, Syria, and Israel to arrange an Israeli pull back from the Sinai and the Golan Heights after the fighting stopped. By January 18, 1974, Secretary of State
United States Secretary of State
The United States Secretary of State is the head of the United States Department of State, concerned with foreign affairs. The Secretary is a member of the Cabinet and the highest-ranking cabinet secretary both in line of succession and order of precedence...

 Henry Kissinger
Henry Kissinger
Heinz Alfred "Henry" Kissinger is a German-born American academic, political scientist, diplomat, and businessman. He is a recipient of the Nobel Peace Prize. He served as National Security Advisor and later concurrently as Secretary of State in the administrations of Presidents Richard Nixon and...

 had negotiated an Israeli troop withdrawal from parts of the Sinai. The promise of a negotiated settlement between Israel and Syria was sufficient to convince Arab oil producers to lift the embargo in March 1974. By May, Israel agreed to withdraw from some parts of the Golan Heights.

Independently, the OAPEC members agreed to use their leverage over the world price setting mechanism for oil
Petroleum
Petroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...

 to stabilize their real incomes by raising world oil prices. This action followed several years of steep income declines after the recent failure of negotiations with the major Western oil companies earlier in the month.

Industrialized economies relied on crude oil, and OPEC was their predominant supplier. Because of the dramatic inflation experienced during this period, a popular economic theory has been that these price increases were to blame, as being suppressive of economic activity. A minority dissenting opinion questions the causal relationship described by this theory. The targeted countries responded with a wide variety of new, and mostly permanent, initiatives to contain their further dependency. The 1973 "oil price shock", along with the 1973–1974 stock market crash, have been regarded as the first event since the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

 to have a persistent economic effect.


Founding of OPEC


The Organization of the Petroleum Exporting Countries (OPEC), which then consisted of twelve countries, including Iran
Iran
Iran , officially the Islamic Republic of Iran , is a country in Southern and Western Asia. The name "Iran" has been in use natively since the Sassanian era and came into use internationally in 1935, before which the country was known to the Western world as Persia...

, seven Arab
Arab world
The Arab world refers to Arabic-speaking states, territories and populations in North Africa, Western Asia and elsewhere.The standard definition of the Arab world comprises the 22 states and territories of the Arab League stretching from the Atlantic Ocean in the west to the Arabian Sea in the...

 countries (Iraq
Iraq
Iraq ; officially the Republic of Iraq is a country in Western Asia spanning most of the northwestern end of the Zagros mountain range, the eastern part of the Syrian Desert and the northern part of the Arabian Desert....

, Kuwait
Kuwait
The State of Kuwait is a sovereign Arab state situated in the north-east of the Arabian Peninsula in Western Asia. It is bordered by Saudi Arabia to the south at Khafji, and Iraq to the north at Basra. It lies on the north-western shore of the Persian Gulf. The name Kuwait is derived from the...

, Libya
Libya
Libya is an African country in the Maghreb region of North Africa bordered by the Mediterranean Sea to the north, Egypt to the east, Sudan to the southeast, Chad and Niger to the south, and Algeria and Tunisia to the west....

, Qatar
Qatar
Qatar , also known as the State of Qatar or locally Dawlat Qaṭar, is a sovereign Arab state, located in the Middle East, occupying the small Qatar Peninsula on the northeasterly coast of the much larger Arabian Peninsula. Its sole land border is with Saudi Arabia to the south, with the rest of its...

, Saudi Arabia
Saudi Arabia
The Kingdom of Saudi Arabia , commonly known in British English as Saudi Arabia and in Arabic as as-Sa‘ūdiyyah , is the largest state in Western Asia by land area, constituting the bulk of the Arabian Peninsula, and the second-largest in the Arab World...

, the United Arab Emirates
United Arab Emirates
The United Arab Emirates, abbreviated as the UAE, or shortened to "the Emirates", is a state situated in the southeast of the Arabian Peninsula in Western Asia on the Persian Gulf, bordering Oman, and Saudi Arabia, and sharing sea borders with Iraq, Kuwait, Bahrain, Qatar, and Iran.The UAE is a...

), plus Venezuela
Venezuela
Venezuela , officially called the Bolivarian Republic of Venezuela , is a tropical country on the northern coast of South America. It borders Colombia to the west, Guyana to the east, and Brazil to the south...

, Indonesia
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...

, Nigeria
Nigeria
Nigeria , officially the Federal Republic of Nigeria, is a federal constitutional republic comprising 36 states and its Federal Capital Territory, Abuja. The country is located in West Africa and shares land borders with the Republic of Benin in the west, Chad and Cameroon in the east, and Niger in...

, and Ecuador
Ecuador
Ecuador , officially the Republic of Ecuador is a representative democratic republic in South America, bordered by Colombia on the north, Peru on the east and south, and by the Pacific Ocean to the west. It is one of only two countries in South America, along with Chile, that do not have a border...

, had been formed at a Baghdad conference on September 14, 1960. OPEC was organized to resist pressure by the "Seven Sisters"
Seven Sisters (oil companies)
The "Seven Sisters" was a term coined in the 1950s by businessman Enrico Mattei, then-head of the Italian state oil company Eni, to describe the seven oil companies which formed the "Consortium for Iran" and dominated the global petroleum industry from the mid-1940s to the 1970s...

 (mostly owned by U.S., British and Dutch nationals) to reduce oil prices
Price of petroleum
The price of petroleum as quoted in news generally refers to the spot price per barrel of either WTI/light crude as traded on the New York Mercantile Exchange for delivery at Cushing, Oklahoma, or of Brent as traded on the Intercontinental Exchange for delivery at Sullom Voe.The price...

 and payments to producing countries. At first OPEC had operated as an informal bargaining unit for the sale of oil by resource-rich Third World
Third World
The term Third World arose during the Cold War to define countries that remained non-aligned with either capitalism and NATO , or communism and the Soviet Union...

 nations. OPEC confined its activities to gaining a larger share of the profits generated by the Western oil companies and greater control over the members' levels of production. As a result of this and other events in the early 1970s, it began to exert its economic and political strength; the major Western oil conglomerates, as well as the importing nations, suddenly faced a unified bloc of exporters.

End of Bretton Woods


On August 15, 1971, the United States unilaterally pulled out
Nixon Shock
The Nixon Shock was a series of economic measures taken by U.S. President Richard Nixon in 1971 including unilaterally cancelling the direct convertibility of the United States dollar to gold that essentially ended the existing Bretton Woods system of international financial exchange.-Background:By...

 of the Bretton Woods Accord
Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...

 taking the US off the Gold Exchange Standard (whereby only the value of the US dollar had been pegged to the price of gold and all other currencies were pegged to the US dollar), allowing the dollar to "float". Shortly thereafter, Britain followed, floating the pound sterling. The industrialized nations followed suit with their respective currencies. In anticipation of the fluctuation of currencies as they stabilized against each other, the industrialized nations also increased their reserves (printing money) in amounts far greater than ever before. The result was a depreciation
Depreciation (currency)
Currency depreciation is the loss of value of a country's currency with respect to one or more foreign reference currencies, typically in a floating exchange rate system. It is most often used for the unofficial increase of the exchange rate due to market forces, though sometimes it appears...

 of the value of the US dollar, as well as the other currencies of the world. Because oil was priced in dollars, this meant that oil producers were receiving less real income for the same price. The OPEC cartel issued a joint communique stating that, from then on, they would price a barrel of oil against gold.

This led to the "Oil Shock" of the mid-seventies. In the years after 1971, OPEC was slow to readjust prices to reflect this depreciation. From 1947-1967 the price of oil in U.S. dollars had risen by less than two percent per year. Until the Oil Shock, the price remained fairly stable versus other currencies and commodities, but suddenly became extremely volatile thereafter. OPEC ministers had not developed the institutional mechanisms to update prices rapidly enough to keep up with changing market conditions, so their real incomes lagged for several years. The substantial price increases of 1973-74 largely caught up their incomes to Bretton Woods levels in terms of other commodities such as gold.

Yom Kippur War


On October 6, 1973, Syria and Egypt launched a surprise attack
Yom Kippur War
The Yom Kippur War, Ramadan War or October War , also known as the 1973 Arab-Israeli War and the Fourth Arab-Israeli War, was fought from October 6 to 25, 1973, between Israel and a coalition of Arab states led by Egypt and Syria...

 on Israel
Israel
The State of Israel is a parliamentary republic located in the Middle East, along the eastern shore of the Mediterranean Sea...

. This new round in the Arab-Israeli conflict triggered a crisis already in the making; the price of oil was going to rise. The West could not continue to increase its energy consumption 5% annually, while also paying low oil prices, and selling inflation-priced goods to the petroleum producers in the developing Third World. This was stressed by the Shah of Iran
Mohammad Reza Pahlavi
Mohammad Rezā Shāh Pahlavi, Shah of Iran, Shah of Persia , ruled Iran from 16 September 1941 until his overthrow by the Iranian Revolution on 11 February 1979...

, whose nation was the world's second-largest exporter of oil and a close ally of the United States in the Middle East at the time. "Of course [the world price of oil] is going to rise", the Shah told The New York Times
The New York Times
The New York Times is an American daily newspaper founded and continuously published in New York City since 1851. The New York Times has won 106 Pulitzer Prizes, the most of any news organization...

 in 1973. "Certainly! And how...; You [Western nations] increased the price of wheat
Wheat
Wheat is a cereal grain, originally from the Levant region of the Near East, but now cultivated worldwide. In 2007 world production of wheat was 607 million tons, making it the third most-produced cereal after maize and rice...

 you sell us by 300%, and the same for sugar and cement...; You buy our crude oil and sell it back to us, refined as petrochemical
Petrochemical
Petrochemicals are chemical products derived from petroleum. Some chemical compounds made from petroleum are also obtained from other fossil fuels, such as coal or natural gas, or renewable sources such as corn or sugar cane....

s, at a hundred times the price you've paid to 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, President Richard Nixon
Richard Nixon
Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...

 authorized Operation Nickel Grass
Operation Nickel Grass
Operation Nickel Grass was an overt strategic airlift operation conducted by the United States to deliver weapons and supplies to Israel during the Yom Kippur War. The Military Airlift Command of the U.S...

, an overt strategic airlift to deliver weapons and supplies to Israel, after the Soviet Union began sending arms to Syria and Egypt.

Arab oil embargo


On October 16, 1973, OPEC announced a decision to raise 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 over time in five percent increments until their economic and political objectives were met. October 19, US President Richard Nixon
Richard Nixon
Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...

 requested Congress to appropriate $2.2 billion in emergency aid to Israel, including $1.5 billion in out-right grants. George Lenczowski
George Lenczowski
George Lenczowski was a lawyer, diplomat, scholar, and Professor of Political Science, Emeritus, at the University of California, Berkeley. Lenczowski was a pioneer in his field as the founder and first chair of the Committee of Middle Eastern Studies at Berkeley...

 notes, "Military supplies did not exhaust Nixon's eagerness to prevent Israel's collapse. ... This [$2.2B] decision triggered a collective OPEC response." Libya announced it would embargo all oil shipments to the United States. Saudi Arabia and the other OPEC states quickly followed suit, joining the embargo on October 20, 1973. At their meeting in Kuwait the OPEC oil-producing countries, proclaimed the oil boycott
Boycott
A boycott is an act of voluntarily abstaining from using, buying, or dealing with a person, organization, or country as an expression of protest, usually for political reasons...

 that provided for curbs on their oil exports to various consumer countries and a total embargo on oil deliveries to the United States as a "principal hostile country". The embargo was thus variously extended to Western Europe and Japan.

Though United States was the initial target of the embargo, it was later expanded to the Netherlands. Price increases were also imposed. Since short term oil demand
Price elasticity of demand
Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price...

 is inelastic, demand falls little when the price is raised. Thus, oil prices had to be raised dramatically to reduce demand to the new lower level of supply. Anticipating this, the market price for oil immediately rose substantially, from $3 a barrel to $12. The world financial system, which was already under pressure from the breakdown of the Bretton Woods agreement
United Nations Monetary and Financial Conference
The United Nations Monetary and Financial Conference, commonly known as the Bretton Woods conference, was a gathering of 730 delegates from all 44 Allied nations at the Mount Washington Hotel, situated in Bretton Woods, New Hampshire, to regulate the international monetary and financial order after...

, was set on a path of recessions and high inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

 that persisted until the early 1980s, with oil prices continuing to rise until 1986.

Over the long term, the oil embargo changed the nature of policy in the West towards increased exploration, energy conservation, and more restrictive monetary policy to better fight inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

.

Chronology

  • January 1973—The 1973–1974 stock market crash begins, as a result of inflation pressure, the Nixon Shock
    Nixon Shock
    The Nixon Shock was a series of economic measures taken by U.S. President Richard Nixon in 1971 including unilaterally cancelling the direct convertibility of the United States dollar to gold that essentially ended the existing Bretton Woods system of international financial exchange.-Background:By...

     and the collapsing monetary system
    Smithsonian Agreement
    The Smithsonian Agreement was a December 1971 agreement that ended the fixed exchange rates established at the Bretton Woods Conference of 1944.-History:...

    .
  • August 23, 1973—In preparation for the Yom Kippur War, Saudi King Faisal
    Faisal of Saudi Arabia
    Faisal bin Abdul-Aziz Al Saud was King of Saudi Arabia from 1964 to 1975. As king, he is credited with rescuing the country's finances and implementing a policy of modernization and reform, while his main foreign policy themes were pan-Islamic Nationalism, anti-Communism, and pro-Palestinian...

     and Egyptian president Anwar Sadat
    Anwar Sadat
    Muhammad Anwar al-Sadat was the third President of Egypt, serving from 15 October 1970 until his assassination by fundamentalist army officers on 6 October 1981...

     meet in Riyadh
    Riyadh
    Riyadh is the capital and largest city of Saudi Arabia. It is also the capital of Riyadh Province, and belongs to the historical regions of Najd and Al-Yamama. It is situated in the center of the Arabian Peninsula on a large plateau, and is home to 5,254,560 people, and the urban center of a...

     and secretly negotiate an accord whereby the Arabs will use the "oil weapon" as part of the upcoming military conflict.
  • October 6 - Egypt
    Egypt
    Egypt , officially the Arab Republic of Egypt, Arabic: , is a country mainly in North Africa, with the Sinai Peninsula forming a land bridge in Southwest Asia. Egypt is thus a transcontinental country, and a major power in Africa, the Mediterranean Basin, the Middle East and the Muslim world...

     and Syria
    Syria
    Syria , officially the Syrian Arab Republic , is a country in Western Asia, bordering Lebanon and the Mediterranean Sea to the West, Turkey to the north, Iraq to the east, Jordan to the south, and Israel to the southwest....

     attack Israel
    Israel
    The State of Israel is a parliamentary republic located in the Middle East, along the eastern shore of the Mediterranean Sea...

    i occupied lands in Sinai and Golan Heights on Yom Kippur
    Yom Kippur
    Yom Kippur , also known as Day of Atonement, is the holiest and most solemn day of the year for the Jews. Its central themes are atonement and repentance. Jews traditionally observe this holy day with a 25-hour period of fasting and intensive prayer, often spending most of the day in synagogue...

    , starting the fourth Arab-Israeli War.
  • October 8–October 10—OPEC negotiations with major oil companies to revise the 1971 Tehran price agreement fail.
  • October 12— The United States initiates Operation Nickel Grass
    Operation Nickel Grass
    Operation Nickel Grass was an overt strategic airlift operation conducted by the United States to deliver weapons and supplies to Israel during the Yom Kippur War. The Military Airlift Command of the U.S...

    , an overt strategic airlift operation to provide replacement weapons and supplies to Israel during the Yom Kippur War. This followed similar Soviet moves to supply the Arab side.
  • October 16 - Saudi Arabia
    Saudi Arabia
    The Kingdom of Saudi Arabia , commonly known in British English as Saudi Arabia and in Arabic as as-Sa‘ūdiyyah , is the largest state in Western Asia by land area, constituting the bulk of the Arabian Peninsula, and the second-largest in the Arab World...

    , Iran
    Iran
    Iran , officially the Islamic Republic of Iran , is a country in Southern and Western Asia. The name "Iran" has been in use natively since the Sassanian era and came into use internationally in 1935, before which the country was known to the Western world as Persia...

    , Iraq
    Iraq
    Iraq ; officially the Republic of Iraq is a country in Western Asia spanning most of the northwestern end of the Zagros mountain range, the eastern part of the Syrian Desert and the northern part of the Arabian Desert....

    , Abu Dhabi
    Abu Dhabi
    Abu Dhabi , literally Father of Gazelle, is the capital and the second largest city of the United Arab Emirates in terms of population and the largest of the seven member emirates of the United Arab Emirates. Abu Dhabi lies on a T-shaped island jutting into the Persian Gulf from the central western...

    , Kuwait
    Kuwait
    The State of Kuwait is a sovereign Arab state situated in the north-east of the Arabian Peninsula in Western Asia. It is bordered by Saudi Arabia to the south at Khafji, and Iraq to the north at Basra. It lies on the north-western shore of the Persian Gulf. The name Kuwait is derived from the...

    , and Qatar
    Qatar
    Qatar , also known as the State of Qatar or locally Dawlat Qaṭar, is a sovereign Arab state, located in the Middle East, occupying the small Qatar Peninsula on the northeasterly coast of the much larger Arabian Peninsula. Its sole land border is with Saudi Arabia to the south, with the rest of its...

     unilaterally raise posted prices by 17% to $3.65 per barrel and announce production cuts.
  • October 17—OPEC oil ministers agree to use oil as a weapon to influence the West's support of Israel in the Yom Kippur war. They recommend an embargo against non-complying states and mandate a cut in exports.
  • October 19—US President Richard Nixon
    Richard Nixon
    Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...

     requests Congress to appropriate $2.2billion in emergency aid to Israel. This decision triggered a collective Arab response. Libya
    Libya
    Libya is an African country in the Maghreb region of North Africa bordered by the Mediterranean Sea to the north, Egypt to the east, Sudan to the southeast, Chad and Niger to the south, and Algeria and Tunisia to the west....

     proclaims an embargo on oil exports to the United States; Saudi Arabia and other Arab states follow.
  • October 23–October 28—The Arab oil embargo is extended to the Netherlands.
  • October 26—The Yom Kippur War ends.
  • November 5—Arab producers announce a 25% output cut. A further 5% cut is threatened.
  • November 23—The Arab embargo is extended to Portugal
    Portugal
    Portugal , officially the Portuguese Republic is a country situated in southwestern Europe on the Iberian Peninsula. Portugal is the westernmost country of Europe, and is bordered by the Atlantic Ocean to the West and South and by Spain to the North and East. The Atlantic archipelagos of the...

    , Rhodesia
    Rhodesia
    Rhodesia , officially the Republic of Rhodesia from 1970, was an unrecognised state located in southern Africa that existed between 1965 and 1979 following its Unilateral Declaration of Independence from the United Kingdom on 11 November 1965...

    , and South Africa
    South Africa
    The Republic of South Africa is a country in southern Africa. Located at the southern tip of Africa, it is divided into nine provinces, with of coastline on the Atlantic and Indian oceans...

    .
  • November 27—U.S. President Richard Nixon
    Richard Nixon
    Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...

     signs the Emergency Petroleum Allocation Act authorizing price, production, allocation and marketing controls.
  • December 9—Arab oil ministers agree to another five percent cut for non-friendly countries for January 1974.
  • December 25—Arab oil ministers cancel the five percent output cut for January. Saudi oil minister Ahmed Zaki Yamani
    Ahmed Zaki Yamani
    Ahmed Zaki Yamani is a Saudi Arabian politician who was Minister of Oil and Mineral Resources from 1962 until 1986 for his country, and a minister in OPEC for 25 years....

     promises a ten percent OPEC production rise.
  • January 7–January 9, 1974—OPEC decides to freeze prices until April 1.
  • January 18—Israel signs a withdrawal agreement to pull back to the east side of the Suez Canal.
  • February 11 - United States Secretary of State
    United States Secretary of State
    The United States Secretary of State is the head of the United States Department of State, concerned with foreign affairs. The Secretary is a member of the Cabinet and the highest-ranking cabinet secretary both in line of succession and order of precedence...

     Henry Kissinger
    Henry Kissinger
    Heinz Alfred "Henry" Kissinger is a German-born American academic, political scientist, diplomat, and businessman. He is a recipient of the Nobel Peace Prize. He served as National Security Advisor and later concurrently as Secretary of State in the administrations of Presidents Richard Nixon and...

     unveils the Project Independence
    Project Independence
    Project Independence was an initiative announced by U.S. President Richard Nixon on November 7, 1973, in reaction to the OPEC oil embargo and the resulting 1973 oil crisis...

     plan to make U.S. energy independent.
  • February 12–February 14—Progress in Arab-Israeli disengagement brings discussion of oil strategy among the heads of state of Algeria
    Algeria
    Algeria , officially the People's Democratic Republic of Algeria , also formally referred to as the Democratic and Popular Republic of Algeria, is a country in the Maghreb region of Northwest Africa with Algiers as its capital.In terms of land area, it is the largest country in Africa and the Arab...

    , Egypt, Syria and Saudi Arabia.
  • March 5—Israel withdraws the last of its troops from the west side of the Suez Canal.
  • March 17—Arab oil ministers, with the exception of Libya, announce the end of the embargo against the United States.
  • May 31—Diplomacy by Henry Kissinger produces a disengagement agreement on the Syrian front.
  • December 1974—The 1973–1974 stock market crash ends.

Immediate economic effects



The effects of the embargo were immediate. OPEC forced the oil companies to increase payments drastically. The price of oil quadrupled by 1974 to nearly US$12 per barrel
Barrel (unit)
A barrel is one of several units of volume, with dry barrels, fluid barrels , oil barrel, etc...

 (75 US$/m3).

This increase in the price of oil had a dramatic effect on oil exporting nations, for the countries of the Middle East who had long been dominated by the industrial powers were seen to have acquired control of a vital commodity. The traditional flow of capital reversed as the oil exporting nations accumulated vast wealth. Some of the income was dispensed in the form of aid to other underdeveloped nations whose economies had been caught between higher prices of oil and lower prices for their own export commodities and raw materials amid shrinking Western demand for their goods. Much was absorbed in massive arms purchases that exacerbated political tensions, particularly in the Middle East.

This control of a vital commodity became known as the "oil weapon," which came in the form of an embargo and cutbacks in oil production from the Arab states to select industrial governments of the world to pressure Israel during the fourth Arab-Israeli War in October 1973. These target industrial governments included the United States, Great Britain, Canada, Japan, and the Netherlands. In retrospect, the purpose of the embargo, as perceived by these target governments, was to sway their foreign policies concerning Israel towards a more pro-Arab position by threatening to cut off exports of Arab oil, and that in altering their policies the Arab states would respond by again allowing their purchase of more oil. The Arab states selected their target governments to emplace their embargo, mostly affecting the European Common Market countries and Japan with a eventual 25% oil cut in production. However, in all five cases there did not appear to be the dramatic change in policy making as envisioned by the Arab states.

In the case of the United States, scholars argue that there already existed a negotiated settlement based on equality between both parties prior to 1973. Second, Soviet involvement in the Middle East as a threat to becoming another superpower confrontation was of more concern to the United States than the oil weapon. A third reason, the interest groups and other government agencies that were more concerned with the implications of the oil weapon held little influential power concerning foreign policy in the Arab-Israeli conflict because of Kissinger's total dominance over this process. Also within the United States concerning the economic impact at the macro level, direct correlations have been drawn between the rise in oil prices and economic recessions. "Oil price shocks", referring to disruptions in the production and distribution of oil, that result in the increase of oil prices "have been held responsible for recessions, periods of excessive inflation, reduced productivity, and lower economic growth"

The effect of the Arab embargo had a negative influence on the U.S economy through causing immediate demands to address the threats to U.S energy security. On an international level, the price increases of petroleum disrupted market systems in changing competitive positions. At the macro level, economic problems consisted of both inflationary and deflationary impacts of domestic economies. The Arab embargo left many U.S companies searching for new ways to develop expensive oil, even in the elements of rugged terrain such as in hostile arctic environments. The problem that many of these companies faced is that finding oil and developing new oil fields usually require a time lag of 5 to 10 years between the planning process and significant oil production.

OPEC-member states in the developing world withheld the prospect of nationalization
Nationalization
Nationalisation, also spelled nationalization, is the process of taking an industry or assets into government ownership by a national government or state. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being...

 of the companies' holdings in their countries. Most notably, the Saudis acquired operating control of Aramco, fully nationalizing it in 1980 under the leadership of Ahmed Zaki Yamani
Ahmed Zaki Yamani
Ahmed Zaki Yamani is a Saudi Arabian politician who was Minister of Oil and Mineral Resources from 1962 until 1986 for his country, and a minister in OPEC for 25 years....

. As other OPEC nations followed suit, the cartel's income soared. Saudi Arabia, awash with profits, undertook a series of ambitious five-year development plans, of which the most ambitious, begun in 1980, called for the expenditure of $250 billion. Other cartel members also undertook major economic development programs.

Meanwhile, the shock produced chaos in the West. In the United States, the retail price of a gallon of gasoline (petrol) rose from a national average of 38.5 cents in May 1973 to 55.1 cents in June 1974. State governments requested citizens not put up Christmas lights, with Oregon
Oregon
Oregon is a state in the Pacific Northwest region of the United States. It is located on the Pacific coast, with Washington to the north, California to the south, Nevada on the southeast and Idaho to the east. The Columbia and Snake rivers delineate much of Oregon's northern and eastern...

 banning Christmas as well as 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 resulted in lines on weekdays.

The embargo was not uniform across Europe. Of the nine members of the European Economic Community
European Economic Community
The European Economic Community The European Economic Community (EEC) The European Economic Community (EEC) (also known as the Common Market in the English-speaking world, renamed the European Community (EC) in 1993The information in this article primarily covers the EEC's time as an independent...

 (EEC), the Netherlands faced a complete embargo, the United Kingdom 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), whilst the other six faced only partial cutbacks. The UK had traditionally been an ally of Israel, and Harold Wilson
Harold Wilson
James Harold Wilson, Baron Wilson of Rievaulx, KG, OBE, FRS, FSS, PC was a British Labour Member of Parliament, Leader of the Labour Party. He was twice Prime Minister of the United Kingdom during the 1960s and 1970s, winning four general elections, including a minority government after the...

's government had supported the Israelis during the Six Day War, but his successor, Ted Heath
Edward Heath
Sir Edward Richard George "Ted" Heath, KG, MBE, PC was a British Conservative politician who served as Prime Minister of the United Kingdom and as Leader of the Conservative Party ....

, had reversed this policy in 1970, calling for Israel to withdraw to its pre-1967 borders. The members of the EEC had been unable to achieve a common policy during the first month of the Yom Kippur War. The Community finally issued a statement on November 6, after the embargo and price rises had begun; widely seen as pro-Arab, this statement supported the Franco-British line on the war, and OPEC duly lifted its embargo from all members of the EEC. The price rises had a much greater impact in Europe than the embargo, particularly in the UK (where they combined with strikes by coal miners and railroad workers to cause an energy crisis
Energy crisis
An energy crisis is any great bottleneck in the supply of energy resources to an economy. In popular literature though, it often refers to one of the energy sources used at a certain time and place, particularly those that supply national electricity grids or serve as fuel for vehicles...

 over the winter of 1973-74, a major factor in the change of government
United Kingdom general election, February 1974
The United Kingdom's general election of February 1974 was held on the 28th of that month. It was the first of two United Kingdom general elections held that year, and the first election since the Second World War not to produce an overall majority in the House of Commons for the winning party,...

). 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 given ration of electricity
Electricity
Electricity is a general term encompassing a variety of phenomena resulting from the presence and flow of electric charge. These include many easily recognizable phenomena, such as lightning, static electricity, and the flow of electrical current in an electrical wire...

. Ted Heath asked the British to heat only one room in their houses over the winter.

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

Price controls and rationing




Government price controls further exacerbated the crisis in the United States, which limited the price of "old oil" (that already discovered) while allowing newly discovered oil to be sold at a higher price, resulting in a withdrawal of old oil from the market and the creation of artificial scarcity. The rule also discouraged alternative energies or more efficient fuels or technologies from being developed. The rule had been intended to promote oil exploration
Oil exploration
Hydrocarbon exploration is the search by petroleum geologists and geophysicists for hydrocarbon deposits beneath the Earth's surface, such as oil and natural gas...

. This scarcity was dealt with by rationing of gasoline (which occurred in many countries), with motorists facing long lines at gas stations beginning in summer 1972 and increasing by summer 1973.

In 1973, U.S. President Richard Nixon
Richard Nixon
Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...

 named William E. Simon
William E. Simon
William Edward Simon was a businessman, a Secretary of Treasury of the U.S. for three years, and a philanthropist. He became the 63rd Secretary of the Treasury on May 8, 1974, during the Nixon administration. He was reappointed by President Ford and served until 1977. Outside of government, he was...

 as the first Administrator of the Federal Energy Office, or the "Energy Czar
Energy Czar
Energy Czar is a nickname, using the political term "czar", for the person in the Government of the United States given authority over energy policy within the executive branch...

". Simon allocated states the same amount of domestic oil for 1974 that each consumed in 1972, which worked well for states whose populations were not increasing. In states with increased populations, lines at gasoline stations were common. The American Automobile Association
American Automobile Association
AAA , formerly known as the American Automobile Association, is a federation of 51 independently operated motor clubs throughout North America. AAA is a not-for-profit member service organization with more than 51 million members. AAA provides services to its members such as travel, automotive,...

 reported that in the last week of February 1974, 20% of American gasoline stations had no fuel at all.

In the U.S., odd-even rationing
Odd-even rationing
Odd-even rationing is a method of rationing in which access to some resource is restricted to half the population on any given day. In a common example, cars are allowed to drive or to purchase gasoline on alternate days, according to whether the last digit in their license plate is even or odd...

 was implemented; drivers of vehicles with license plates having an odd number as the last digit (or a vanity license plate
Vanity plate
A vanity plate or personalized plate , prestige plate, private number plate, or personalised registration or custom plate or personalised plate is a special type of vehicle registration plate on an automobile or other vehicle...

) were allowed to purchase gasoline for their cars only on odd-numbered days of the month, while drivers of vehicles with even-numbered license plates were allowed to purchase fuel only on even-numbered days. The rule did not apply on the 31st day of those months containing 31 days, or on February 29 in leap year
Leap year
A leap year is a year containing one extra day in order to keep the calendar year synchronized with the astronomical or seasonal year...

s— the latter never came into play, since the restrictions had been abolished by 1976.

In some U.S. states, a three-color flag system was used to denote gasoline availability at service stations — a green flag denoted unrationed sale of gasoline, a yellow flag denoted restricted and rationed sales, and a red flag denoted that no gasoline was available but the service station was open for other services. Additionally, coupons for gasoline rationing were ordered in 1974 and 1975 for Federal Energy Administration, but were never actually used for this crisis or the 1979 energy crisis
1979 energy crisis
The 1979 oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the Ayatollah Khomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil...

.

The rationing led to incidents of violence, after truck drivers nationwide chose to strike for two days in December 1973 because they objected to the supplies Simon had rationed for their industry. In Pennsylvania
Pennsylvania
The Commonwealth of Pennsylvania is a U.S. state that is located in the Northeastern and Mid-Atlantic regions of the United States. The state borders Delaware and Maryland to the south, West Virginia to the southwest, Ohio to the west, New York and Ontario, Canada, to the north, and New Jersey to...

 and Ohio
Ohio
Ohio is a Midwestern state in the United States. The 34th largest state by area in the U.S.,it is the 7th‑most populous with over 11.5 million residents, containing several major American cities and seven metropolitan areas with populations of 500,000 or more.The state's capital is Columbus...

, non-striking truckers were shot at by striking truckers, and in Arkansas
Arkansas
Arkansas is a state located in the southern region of the United States. Its name is an Algonquian name of the Quapaw Indians. Arkansas shares borders with six states , and its eastern border is largely defined by the Mississippi River...

, trucks of non-strikers were attacked with bomb
Bomb
A bomb is any of a range of explosive weapons that only rely on the exothermic reaction of an explosive material to provide an extremely sudden and violent release of energy...

s.

America had controlled the price of natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...

 since the 1950s, and with the inflation of the 1970s, the market price of natural gas was not encouraging the search for new reserves. America's natural gas reserves dwindled from 237 trillion in 1974 to 203 trillion in 1978, and the price controls were not changed despite President Gerald Ford
Gerald Ford
Gerald Rudolph "Jerry" Ford, Jr. was the 38th President of the United States, serving from 1974 to 1977, and the 40th Vice President of the United States serving from 1973 to 1974...

's repeated requests to Congress.

Conservation and reduction in demand


To help reduce consumption, in 1974 a national maximum speed limit
National Maximum Speed Law
The National Maximum Speed Law in the United States was a provision of the 1974 Emergency Highway Energy Conservation Act that prohibited speed limits higher than . It was drafted in response to oil price spikes and supply disruptions during the 1973 oil crisis...

 of 55 mph (about 88 km/h) was imposed through the Emergency Highway Energy Conservation Act. Development of the United States Strategic Petroleum Reserve
Strategic Petroleum Reserve
The Strategic Petroleum Reserve is an emergency fuel storage of oil maintained by the United States Department of Energy.- United States :The US SPR is the largest emergency supply in the world with the current capacity to hold up to ....

 began in 1975, and in 1977, the cabinet-level Department of Energy
United States Department of Energy
The United States Department of Energy is a Cabinet-level department of the United States government concerned with the United States' policies regarding energy and safety in handling nuclear material...

 was created, followed by the National Energy Act
National Energy Act
The National Energy Act of 1978 was a legislative response by the U.S. Congress to the 1973 energy crisis. It includes the following statutes:* Public Utility Regulatory Policies Act * Energy Tax Act * National Energy Conservation Policy Act...

 of 1978.

Year-round daylight saving time
Daylight saving time
Daylight saving time —also summer time in several countries including in British English and European official terminology —is the practice of temporarily advancing clocks during the summertime so that afternoons have more daylight and mornings have less...

 was implemented from January 6, 1974 to February 23, 1975. The move spawned significant criticism because it forced many children to commute to school before sunrise. The pre-existing daylight-saving rules, calling for the clocks to be advanced one hour on the last Sunday in April, were restored in 1976.


The crisis also prompted a call for individuals and businesses to conserve energy, most notably a campaign by the Advertising Council using the tag line "Don't Be Fuelish." Many newspapers carried full-page advertisements that featured cut-outs which could be attached to light switches, reading "Last Out, Lights Out: Don't Be Fuelish."

By 1980, there were no longer full-size luxury cars with a 130 inches (3.3 m) wheelbase
Wheelbase
In both road and rail vehicles, the wheelbase is the distance between the centers of the front and rear wheels.- Road :In automobiles, the wheelbase is the horizontal distance between the center of the front wheel and the center of the rear wheel...

 and gross weights averaging 4,500 pounds (2,041 kg). The automakers began phasing out the traditional front engine/rear wheel drive layout in favor of more efficient front engine/front wheel drive designs.

Though not regulated by the new legislation, auto racing groups voluntarily began conserving as well. In 1974 the 24 Hours of Daytona
24 Hours of Daytona
The 24 Hours of Daytona, currently known as the Rolex 24 Daytona for sponsorship reasons, is a 24-hour sports car endurance race held annually at Daytona International Speedway in Daytona Beach, Florida. It is run on a combined road course, utilizing portions of the NASCAR tri-oval and an infield...

 was canceled and NASCAR
NASCAR
The National Association for Stock Car Auto Racing is a family-owned and -operated business venture that sanctions and governs multiple auto racing sports events. It was founded by Bill France Sr. in 1947–48. As of 2009, the CEO for the company is Brian France, grandson of the late Bill France Sr...

 reduced all race distances by 10%. The 12 Hours of Sebring
12 Hours of Sebring
The 12 Hours of Sebring is an annual motorsport endurance race for sports cars held at Sebring International Raceway, a former Army Air Force base in Sebring, Florida...

 race was cancelled.

In 1976, the U.S. Congress created the Weatherization Assistance Program to help low-income homeowners and renters deal with rising heating costs by reducing their demand through advanced insulation.

Secondary effects


Various secondary effects occurred, notably s in Japan and the United States; these were unfounded panics which became self-fulfilling prophesies, and are classic examples of the Thomas theorem
Thomas theorem
The Thomas theorem is a theory of sociology which was formulated in 1928 by W. I. Thomas :In other words, the interpretation of a situation causes the action. This interpretation is not objective. Actions are affected by subjective perceptions of situations...

. Price rises and unfounded rumors of a toilet paper shortage – based on oil being used in paper manufacturing – caused a panic and hoarding of toilet paper in late October and early November in Osaka
Osaka
is a city in the Kansai region of Japan's main island of Honshu, a designated city under the Local Autonomy Law, the capital city of Osaka Prefecture and also the biggest part of Keihanshin area, which is represented by three major cities of Japan, Kyoto, Osaka and Kobe...

 and Kobe
Kobe
, pronounced , is the fifth-largest city in Japan and is the capital city of Hyōgo Prefecture on the southern side of the main island of Honshū, approximately west of Osaka...

, among other cities. In the US, Johnny Carson
Johnny Carson
John William "Johnny" Carson was an American television host and comedian, known as host of The Tonight Show Starring Johnny Carson for 30 years . Carson received six Emmy Awards including the Governor Award and a 1985 Peabody Award; he was inducted into the Television Academy Hall of Fame in 1987...

 inadvertently caused a three-week panic when, on December 19, 1973, he read a news item regarding the US government falling behind on bids for toilet paper and quipping that the nation faced a toilet paper shortage on the Tonight Show.

Search for alternatives


The energy crisis led to greater interest in renewable energy
Renewable energy
Renewable energy is energy which comes from natural resources such as sunlight, wind, rain, tides, and geothermal heat, which are renewable . About 16% of global final energy consumption comes from renewables, with 10% coming from traditional biomass, which is mainly used for heating, and 3.4% from...

 and spurred research in solar power
Solar power
Solar energy, radiant light and heat from the sun, has been harnessed by humans since ancient times using a range of ever-evolving technologies. Solar radiation, along with secondary solar-powered resources such as wind and wave power, hydroelectricity and biomass, account for most of the available...

 and wind power
Wind power
Wind power is the conversion of wind energy into a useful form of energy, such as using wind turbines to make electricity, windmills for mechanical power, windpumps for water pumping or drainage, or sails to propel ships....

. It also led to greater pressure to exploit North American oil sources, and increased the West's dependence on coal
Coal
Coal is a combustible black or brownish-black sedimentary rock usually occurring in rock strata in layers or veins called coal beds or coal seams. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...

 and nuclear
Nuclear reactor
A nuclear reactor is a device to initiate and control a sustained nuclear chain reaction. Most commonly they are used for generating electricity and for the propulsion of ships. Usually heat from nuclear fission is passed to a working fluid , which runs through turbines that power either ship's...

 power. This included increased interest in mass transit.

In Australia, heating oil ceased being considered an appropriate winter heating fuel. This often meant that a lot of oil-fired room heaters that were popular from the late-1950s to the early-1970s were considered outdated. Gas-conversion kits that let the heaters burn natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...

 or propane
Propane
Propane is a three-carbon alkane with the molecular formula , normally a gas, but compressible to a transportable liquid. A by-product of natural gas processing and petroleum refining, it is commonly used as a fuel for engines, oxy-gas torches, barbecues, portable stoves, and residential central...

 were introduced.

For the handful of industrialized nations that were net energy exporters, the effects of the oil crisis were very different. In Canada the industrial east suffered many of the same problems of the United States. In oil rich Alberta
Alberta
Alberta is a province of Canada. It had an estimated population of 3.7 million in 2010 making it the most populous of Canada's three prairie provinces...

, however, there was a sudden and massive influx of money that quickly made it the richest province in the country. The federal government attempted to correct this imbalance through the creation of the government-owned Petro-Canada
Petro-Canada
Petro-Canada was a crown corporation of Canada in the field of oil and natural gas. It was headquartered in the Petro-Canada Centre in Calgary, Alberta. In August, 2009, Petro-Canada merged with Suncor Energy, a deal in which Suncor investors received approximately 60 per cent ownership of the...

 and later the National Energy Program
National Energy Program
The National Energy Program was an energy policy of the Government of Canada. It was created under the Liberal government of Prime Minister Pierre Trudeau by Minister of Energy Marc Lalonde in 1980, and administered by the Department of Energy, Mines and Resources.-Description:The NEP was...

. These efforts produced a great deal of anger in the west producing a sentiment of alienation
Western Alienation
In Canadian politics, Western alienation is a concept that the Western provinces - British Columbia , Alberta, Saskatchewan and Manitoba - have been alienated, and in extreme cases excluded, from mainstream Canadian political affairs in favour of the provinces of Ontario and Quebec...

 that has remained a central element of Canadian politics to this day. Overall the oil embargo had a sharply negative effect on the Canadian economy. The economic malaise in the United States easily crossed the border and increases in unemployment, and stagflation
Stagflation
In economics, stagflation is a situation in which the inflation rate is high and the economic growth rate slows down and unemployment remains steadily high...

 hit Canada as hard as the United States despite Canadian fuel reserves.

The Brazilian government implemented a very large project called "Proálcool" (pro-alcohol) that mixed ethanol
Ethanol
Ethanol, also called ethyl alcohol, pure alcohol, grain alcohol, or drinking alcohol, is a volatile, flammable, colorless liquid. It is a psychoactive drug and one of the oldest recreational drugs. Best known as the type of alcohol found in alcoholic beverages, it is also used in thermometers, as a...

 with gasoline for automotive fuel.

To supplement Israel
Israel
The State of Israel is a parliamentary republic located in the Middle East, along the eastern shore of the Mediterranean Sea...

's over-taxed power grid, Harry Zvi Tabor
Harry Zvi Tabor
Harry Zvi Tabor is an Israeli physicist. He is known as the father of Israeli solar energy. He is generally credited with having brought Israel's solar energy program to international prominence.- Background :...

, the father of Israel's solar industry
Solar power in Israel
Solar power in Israel and the Israeli solar energy industry has a history that dates to the founding of the country. In the 1950s, Levi Yissar developed a solar water heater to help assuage an energy shortage in the new country. By 1967 around one in twenty households heated its water with the...

, developed the prototype for a solar water heater now used in over 90% of Israeli homes.

Macroeconomic effects


The 1973 oil crisis was a major factor in Japan's economy shifting from oil-intensive industries, and resulted in huge Japanese investments in industries such as electronics
Electronics
Electronics is the branch of science, engineering and technology that deals with electrical circuits involving active electrical components such as vacuum tubes, transistors, diodes and integrated circuits, and associated passive interconnection technologies...

. The Japanese auto makers also took advantage of this embargo. After they realized what fuel costs were in the United States, they started producing small, more fuel efficient models, which began selling as an alternative to "gas-guzzling" American vehicles of the time. This triggered a drop in American auto sales that lasted into the 1980s.

The Western nations' central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...

s 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
Stagflation
In economics, stagflation is a situation in which the inflation rate is high and the economic growth rate slows down and unemployment remains steadily high...

 surprised economists and central bankers, and the policy is now considered by some to have deepened and lengthened the adverse effects of the embargo.

Long-term effects of the embargo are still felt. 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
Fortune 500
The Fortune 500 is an annual list compiled and published by Fortune magazine that ranks the top 500 U.S. closely held and public corporations as ranked by their gross revenue after adjustments made by Fortune to exclude the impact of excise taxes companies collect. The list includes publicly and...

 companies were oil companies.

Effects on international relations


The Cold War
Cold War
The Cold War was the continuing state from roughly 1946 to 1991 of political conflict, military tension, proxy wars, and economic competition between the Communist World—primarily the Soviet Union and its satellite states and allies—and the powers of the Western world, primarily the United States...

 policies of the Nixon administration also suffered a major blow in the aftermath of the oil embargo. They had focused on China and the Soviet Union, but the latent challenge to U.S. hegemony coming from the Third World became evident. U.S. power was under attack even in Latin America.

The oil embargo was announced roughly one month after a right-wing military coup in Chile
Chile
Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...

 led by General Augusto Pinochet
Augusto Pinochet
Augusto José Ramón Pinochet Ugarte, more commonly known as Augusto Pinochet , was a Chilean army general and dictator who assumed power in a coup d'état on 11 September 1973...

  Chilean coup of 1973
Chilean coup of 1973
The 1973 Chilean coup d'état was a watershed event of the Cold War and the history of Chile. Following an extended period of political unrest between the conservative-dominated Congress of Chile and the socialist-leaning President Salvador Allende, discontent culminated in the latter's downfall in...

 toppled socialist president Salvador Allende
Salvador Allende
Salvador Allende Gossens was a Chilean physician and politician who is generally considered the first democratically elected Marxist to become president of a country in Latin America....

 on September 11, 1973. The United States' subsequent assistance to this government did little to curb the activities of socialist guerrillas
Guerrilla warfare
Guerrilla warfare is a form of irregular warfare and refers to conflicts in which a small group of combatants including, but not limited to, armed civilians use military tactics, such as ambushes, sabotage, raids, the element of surprise, and extraordinary mobility to harass a larger and...

 in the region. The response of the Nixon administration was to propose doubling of the amount of military arms sold by the United States. As a consequence, a Latin American bloc was organized and financed in part by Venezuela and its oil revenues, which quadrupled between 1970 and 1975.

In addition, Western Europe and Japan began switching from pro-Israel to more pro-Arab policies. This change further strained the Western alliance system, for the United States, 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 backing Israel. The percentage of U.S. oil which comes from the nations bordering the Persian Gulf has remained steady over the years, with a figure of a little more than 10% in 2008.

Although historically having no connections to the Middle East, Japan was the most heavily dependent on its oil from this region, making up 71% of its imported oil from the Middle East in 1970. However, on November 7, 1973, the Saudi and Kuwaiti governments declared Japan a "nonfriendly" country directed towards changing its policy of noninvolvement in the Arab-Israeli conflict, placing a 5 percent production cut in December to Japan. The December production cut to the Japanese government caused somewhat of a panic, where 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 Israel if Israel refused to accept these preconditions" By December 25, Japan was considered a friendly state.

With the oil embargo in place, the industrial governments of the world in some way altered their foreign policy regarding the Arab-Israeli conflict and after the use of the Arab oil weapon. These included European countries such as the UK who decided to refuse to allow the United States to use British bases in the UK and in Cyprus to airlift resupplies to Israel along with the rest of the members of the European Community. It also included the Japanese restatement on November 22, to "reconsider" their relations with Israel if Israel did not acknowledge their avocations to return to their pre-1967 territorial state, although this was never acted upon. Canada shifted towards a more pro-Arab position after displeasure was expressed by many Arab governments towards Canada's Middle Eastern position as one of being mostly neutral. "On the other hand, after the embargo the Canadian government moved quickly indeed toward the Arab position, despite its low dependence on Middle Eastern oil"

A year after the start of the 1973 oil embargo, the nonaligned bloc in the United Nations
United Nations
The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...

 passed a resolution demanding the creation of a "new international economic order" in which resources, trade, and markets would be distributed more equitably, with the local populations of nations within the global South receiving a greater share of benefits derived from the exploitation of southern resources, and greater respect for the right to self-directed development in the South be afforded by the North.

In the post-Cold War era, Israel continues to serve the U.S.A. as a strategically important non-NATO ally in the Middle East. According to the American military journalist and commentator William M. Arkin in his book Code Names, the U.S. has prepositioned munitions, vehicles, and military equipment, and even a 500-bed hospital for use by US Marines, Special Forces, and Air Force fighter and bomber aircraft in a wartime contingency at least six sites in Israel. Late Republican Senator Jesse Helms
Jesse Helms
Jesse Alexander Helms, Jr. was a five-term Republican United States Senator from North Carolina who served as chairman of the Senate Foreign Relations Committee from 1995 to 2001...

 used to call Israel "America's aircraft carrier in the Middle East", when explaining why the US viewed Israel as such a strategic ally, saying that the military foothold in the region offered by the Jewish State alone justified the military aid that the US grants Israel every year. Israel is not the only country in the Middle East to host US military bases, though. There are American military facilities in Egypt, Jordan, Saudi Arabia, Oman, and the Persian Gulf states of Kuwait, Bahrain (headquarters of the United States Fifth Fleet), and Qatar.

Decline of OPEC




Since 1973, OPEC failed to hold on to its preeminent position, and by 1981, its production was surpassed by that of other countries. Additionally, its own member nations were divided among themselves. Saudi Arabia, trying to gain back market share, increased production and caused downward pressure on prices, making high-cost oil production facilities less profitable or even unprofitable. The world price of oil, which had reached a peak in 1979 during the 1979 energy crisis
1979 energy crisis
The 1979 oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the Ayatollah Khomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil...

, at more than US$80 per barrel, decreased during the early 1980s to US$38 per barrel (239 US$/m3). In real prices, oil briefly fell back to pre-1973 levels. Overall, the reduction in price was a windfall for the oil-consuming nations: United States, Japan, Europe, and especially the Third World.

Part of the decline in prices and economic and geopolitical power of OPEC comes from the move away from oil consumption to alternate energy sources. OPEC had relied on the famously limited price inelasticity of oil demand
Price elasticity of demand
Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price...

 to maintain high consumption but had underestimated the extent to which other sources of supply would become profitable as the price increased. Electricity generation from nuclear power
Nuclear power
Nuclear power is the use of sustained nuclear fission to generate heat and electricity. Nuclear power plants provide about 6% of the world's energy and 13–14% of the world's electricity, with the U.S., France, and Japan together accounting for about 50% of nuclear generated electricity...

 and natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...

, home heating from natural gas and ethanol
Ethanol
Ethanol, also called ethyl alcohol, pure alcohol, grain alcohol, or drinking alcohol, is a volatile, flammable, colorless liquid. It is a psychoactive drug and one of the oldest recreational drugs. Best known as the type of alcohol found in alcoholic beverages, it is also used in thermometers, as a...

 blended gasoline all reduced the demand for oil.

At the same time, the drop in prices represented a serious problem for oil-producing countries in northern Europe and the Persian Gulf
Persian Gulf
The Persian Gulf, in Southwest Asia, is an extension of the Indian Ocean located between Iran and the Arabian Peninsula.The Persian Gulf was the focus of the 1980–1988 Iran-Iraq War, in which each side attacked the other's oil tankers...

 region. For a handful of heavily populated, impoverished countries, whose economies were largely dependent on oil — including Mexico, Nigeria
Nigeria
Nigeria , officially the Federal Republic of Nigeria, is a federal constitutional republic comprising 36 states and its Federal Capital Territory, Abuja. The country is located in West Africa and shares land borders with the Republic of Benin in the west, Chad and Cameroon in the east, and Niger in...

, Algeria
Algeria
Algeria , officially the People's Democratic Republic of Algeria , also formally referred to as the Democratic and Popular Republic of Algeria, is a country in the Maghreb region of Northwest Africa with Algiers as its capital.In terms of land area, it is the largest country in Africa and the Arab...

, and Libya
Libya
Libya is an African country in the Maghreb region of North Africa bordered by the Mediterranean Sea to the north, Egypt to the east, Sudan to the southeast, Chad and Niger to the south, and Algeria and Tunisia to the west....

 — governments and business leaders failed to prepare for a market reversal, the price drop placed them in wrenching, sometimes desperate situations.

When reduced demand and over-production produced a glut on the world market in the mid-1980s, oil prices plummeted and the cartel lost its unity. Oil exporters such as Mexico, Nigeria, and Venezuela, whose economies had expanded in the 1970s, were plunged into near-bankruptcy, and even Saudi Arabian economic power was significantly weakened. The divisions within OPEC made subsequent concerted action more difficult.

Nevertheless, the 1973 oil shock provided dramatic evidence of the potential power of Third World resource suppliers in dealing with the developed world. The vast reserves of the leading Middle East producers guaranteed the region its strategic importance, but the politics of oil
Petroleum politics
Petroleum politics have been an increasingly important aspect of diplomacy since the rise of the petroleum industry in the Middle East in the early 20th century...

 still proves dangerous for all concerned to this day.

Long-term effects


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 for the West to seek alternative energy sources, presented the Arab States with financial security, moderate economic growth, and disproportionate international bargaining power. Following the embargo, higher oil prices instigated new avenues for energy exploration or expansion including Alaska
Alaska
Alaska is the largest state in the United States by area. It is situated in the northwest extremity of the North American continent, with Canada to the east, the Arctic Ocean to the north, and the Pacific Ocean to the west and south, with Russia further west across the Bering Strait...

, the North Sea
North Sea
In the southwest, beyond the Straits of Dover, the North Sea becomes the English Channel connecting to the Atlantic Ocean. In the east, it connects to the Baltic Sea via the Skagerrak and Kattegat, narrow straits that separate Denmark from Norway and Sweden respectively...

, the Caspian Sea
Caspian Sea
The Caspian Sea is the largest enclosed body of water on Earth by area, variously classed as the world's largest lake or a full-fledged sea. The sea has a surface area of and a volume of...

, and Caucasus
Caucasus
The Caucasus, also Caucas or Caucasia , is a geopolitical region at the border of Europe and Asia, and situated between the Black and the Caspian sea...

.

Soviet reaction


Prior to the ascendancy of Anwar Sadat
Anwar Sadat
Muhammad Anwar al-Sadat was the third President of Egypt, serving from 15 October 1970 until his assassination by fundamentalist army officers on 6 October 1981...

 to president of Egypt in 1970, the Middle East had been an important arena in the global superpower competition, most lucidly displayed in the arms sales and cooperation between the American and Soviet governments with Israel, Saudi Arabia, and Iran allied to The United States, and Egypt, Syria, and Iraq allied with the Soviet Union. Although none of these states entered into any formal alliances comparative to the North Atlantic Treaty Organization, they did benefit greatly from the geo-political competition in the region and vacillations in alignment often resulted in greater gains of assistance. This competitive environment, beneficial to the regional states involved, was mitigated sharply after 1970. Sadat's dismissal of Soviet specialists in Egypt and the dramatic price increases in hydrocarbons hardened relations with all of the Middle East and created new opportunities for the export of Soviet oil. Exploration in the Caspian Basin and Siberia
Siberia
Siberia is an extensive region constituting almost all of Northern Asia. Comprising the central and eastern portion of the Russian Federation, it was part of the Soviet Union from its beginning, as its predecessor states, the Tsardom of Russia and the Russian Empire, conquered it during the 16th...

 became more cost effective. Former cooperation evolved into a far more adversarial relationship as the Soviet Union increased oil production and export (by 1980 the Soviet Union was the world's largest producer of oil) to take advantage of the supply problems in the West created by OPEC's production reductions. This growing economic competition turned into genuine fears of military aggression after the 1979 Soviet invasion of Afghanistan
Soviet war in Afghanistan
The Soviet war in Afghanistan was a nine-year conflict involving the Soviet Union, supporting the Marxist-Leninist government of the Democratic Republic of Afghanistan against the Afghan Mujahideen and foreign "Arab–Afghan" volunteers...

, leaving the Persian Gulf states to look to the United States for the type of security guarantees against Soviet military action in the Persian Gulf that the Israelis had exclusively received only a decade earlier.

Growing security concerns


The Soviet invasion of Afghanistan was only part of the growing security destabilization in the Middle East, most obviously seen in the increased sale of American weapons, technology, and outright military presence. Saudi Arabia and Iran became increasingly dependent on bi-lateral American security assurances to combat both external and internal threats, including increased military competition between these states because of the increased oil revenues. Both states were seemingly competing for preeminence in the Persian Gulf
Persian Gulf
The Persian Gulf, in Southwest Asia, is an extension of the Indian Ocean located between Iran and the Arabian Peninsula.The Persian Gulf was the focus of the 1980–1988 Iran-Iraq War, in which each side attacked the other's oil tankers...

 and using increased revenues on disproportionately powerful military forces. By 1979, Saudi weapon purchases from the United States were in excess of five times the amount that Israel was purchasing annually. Following the failure of the Shah during January 1979 to maintain control of Iran, the Saudis were forced to deal with the prospect of internal destabilization via Islamic fundamentalism, a reality which would quickly be revealed in the seizure of the Grand Mosque
Grand Mosque Seizure
The Grand Mosque Seizure on November 20, 1979, was an armed attack and takeover by Islamist dissidents of the Al-Masjid al-Haram in Mecca, Saudi Arabia, the holiest place in Islam...

 in Mecca
Mecca
Mecca is a city in the Hijaz and the capital of Makkah province in Saudi Arabia. The city is located inland from Jeddah in a narrow valley at a height of above sea level...

 by Wahhabi extremists during November and a Shia revolt in al-Hasa
Al-Hasa
Al-Ahsa is the largest governorate in Saudi Arabia's Eastern Province, named after Al-Ahsa oasis. The name Al-Ahsa is also given to the biggest city in the region, Hofuf. In classic Arabic, Ahsa means the sound of water underground. It has one of the largest oases in the world with Date Palms of...

 during December.

Conclusions



Growing fears about eventual Western energy independence, various security threats, and the absence of a Western rival in the geo-political competition over the Middle-East led the Arab states in a more dependent relationship with the West. This is most explicit in Saudi Arabia's consistent policy of price and production moderation in an effort to reduce the chances of Western alienation and the opportunity cost
Opportunity cost
Opportunity cost is the cost of any activity measured in terms of the value of the best alternative that is not chosen . It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. The opportunity cost is also the...

s for alternative energy production. The exchange for Western moderation in Arab-Israeli affairs ultimately led to a reshaping of the Middle-Eastern geo-political landscape that was significantly less advantageous than prior to 1973.

West Europe



The motor industry was one of Western Europe's most affected industries in the wake of the 1973 oil crisis.

After the Second World War most West European countries applied heavy taxes to motor fuel because it was imported, and as a result most cars made in Europe were small and economical. However by the late sixties as wealth increased car sizes were rising despite heavy fuel taxes, although some of the more upmarket brands were building cars that could take lead-free fuel, and there were still a number of "economy" cars in production at this time.

But the oil crisis gradually saw many West European car buyers move away from larger, less economical cars. The most notable result of this transition in the car market was the rise in popularity of compact hatchbacks.

The only notable small hatchbacks built in Western Europe at the time of the oil crisis were the Peugeot 104
Peugeot 104
The Peugeot 104 is a supermini motor car designed by Paolo Martin and produced by the French car manufacturer Peugeot between 1972 and 1988.- Production history :Saloon launch 1972...

, Renault 5
Renault 5
The Renault 5 was first unveiled on 10 December 1971, being launched at the beginning of 1972.The Renault 5 was styled by Michel Boué, who died before the car's release, the R5 featured a steeply sloping rear hatchback and front dashboard...

 and Fiat 127
Fiat 127
The Fiat 127 is a supermini produced by the Italian automaker Fiat between 1971 and 1983. It was introduced in 1971 as the replacement for the Fiat 850...

. By the end of the decade, the market had massively expanded with the introduction of the Ford Fiesta
Ford Fiesta
The Ford Fiesta is a front wheel drive supermini/subcompact manufactured and marketed by Ford Motor Company and built in Europe, Brazil, Argentina, Mexico, Venezuela, China, India, Thailand and South Africa...

, Opel Kadett
Opel Kadett
The Opel Kadett is a small family car produced by the German automobile manufacturer Opel between 1937 and 1940, and then again from 1962 until 1991 , when it was replaced by the Opel Astra.-Original model :...

 (sold as the Vauxhall Astra
Vauxhall Astra
Astra is a model name which has been used by Vauxhall, the British subsidiary of General Motors , on their small family car ranges since 1979. Astras are technically essentially identical with similar vehicles offered by GM's German subsidiary Opel in most other European countries...

 in Great Britain), Chrysler Sunbeam
Chrysler Sunbeam
The Chrysler Sunbeam is a small supermini 3-door hatchback manufactured by Chrysler Europe at the former Rootes Group factory in Linwood in Scotland. The Sunbeam's development was funded by a British government grant with the aim to keep the Linwood plant running, and the small car was based on the...

 and Citroën Visa
Citroën Visa
The Citroën Visa is a supermini that was produced by the French car marque Citroën from 1978 to 1988.-Development History:The Citroën Prototype Y to replace the 2CV based Citroën Ami that dated back to 1960 in the early seventies, was originally developed in co-operation with Fiat...

.

Buyers looking for larger cars were increasingly drawn to medium sized hatchbacks that were virtually unknown in Europe in 1973, but by the end of the decade were gradually replacing saloons as the mainstay of this sector. Between 1973 and 1980, the following medium sized hatchbacks were launched across Europe: the Chrysler/Simca Horizon
Chrysler Horizon
The Horizon was a subcompact automobile developed by Chrysler Europe and was sold in Europe between 1977 and 1985 under the Chrysler, Simca and Talbot nameplates...

, Fiat Ritmo
Fiat Ritmo
The Fiat Ritmo is an automobile from the Italian manufacturer Fiat, launched in 1978. Styled by Bertone of Italy, it was seen by some as the most distinctive looking small family car in Europe on its launch in 1978 Turin Motorshow. It was badged in Great Britain and North America as the Fiat Strada...

 (Strada in the UK), Ford Escort MK3, Renault 14
Renault 14
The Renault 14 is a small family car produced by the French manufacturer Renault between 1976 and 1983.It was the first car to be produced in large volumes at the company's then new plant at Douai, although small pilot runs of the Renault 5 had preceded the 14's production in the...

, Volvo 340 / 360
Volvo 300 series
The Volvo 300 series is a rear wheel drive automobile sold as both a hatchback and a conventional saloon from 1976-1991. It was launched in the Netherlands shortly after Volvo acquired a major stake in the passenger car division of DAF in 1973...

, Opel Kadett
Opel Kadett
The Opel Kadett is a small family car produced by the German automobile manufacturer Opel between 1937 and 1940, and then again from 1962 until 1991 , when it was replaced by the Opel Astra.-Original model :...

 and Volkswagen Golf
Volkswagen Golf
The Volkswagen Golf is a small family car manufactured by Volkswagen since 1974 and marketed worldwide across six generations, in various body configurations and under various nameplates – as the Volkswagen Rabbit in the United States and Canada , and as the Volkswagen Caribe in Mexico .The...

. These cars offered new standard of fuel economy, which were much needed in the aftermath of the oil crisis.

The new cars launched in the wake of the oil crisis were considerably more economical than the traditional saloons they were taking the place of, and even attracted a considerable number of buyers who would have otherwise chosen cars in the next sector. Their success continued into the 1980s and by the later part of the decade, some 15 years after the oil crisis, hatchbacks almost monopolised most European small and medium car markets, and had gained a substantial share of the large family car market.

U.S.


As in Western Europe, U.S. automakers were significantly impacted by the 1973 oil embargo and energy crisis. Before the energy crisis, large, heavy, and powerful cars were the standard in the U.S. 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 (3,086.1 mm), and Motor Trends 1972 road test of the similar Chevrolet Impala
Chevrolet Impala
The Chevrolet Impala is a full-size automobile built by the Chevrolet division of General Motors introduced for the 1958 model year. Deriving its name from the southern African antelope, Chevrolet's most expensive passenger model through 1965 had become the best-selling automobile in the United...

 logged no more than 15 miles per gallon on the highway.

After the energy crisis, however, gasoline cost more and reduced the demand for large cars. The Toyota Corona
Toyota Corona
The Toyota Corona is an automobile manufactured by the Japanese automaker Toyota between 1957 and 2002. Traditionally, the competitor from Nissan was the Nissan Bluebird. The word Corona is Latin for "crown"...

, the Toyota Corolla
Toyota Corolla
The Toyota Corolla is a line of subcompact and compact cars manufactured by the Japanese automaker Toyota, which has become very popular throughout the world since the nameplate was first introduced in 1966. In 1997, the Corolla became the best selling nameplate in the world, with over 35 million...

, the Datsun B210, the Datsun 510
Datsun 510
The Datsun 510 was a series of the Datsun Bluebird sold from 1968 to 1974, and offered outside the U.S. and Canada as the Datsun 1600. According to AutoWeek's G.D...

, the Honda Civic
Honda Civic (first generation)
Honda began selling the 1169 cc transversely mounted inline four-cylinder Civic for about US$2,200. The car produced roughly 50 hp and included power front disc brakes, vinyl seating, reclining bucket seats, and a woodgrain-accented dashboard. The hatchback version added a fold-down...

, the Mitsubishi Galant
Mitsubishi Galant
The first generation of the car, initially known as the Colt Galant, was released in December 1969. The design was dubbed "Dynawedge" by Mitsubishi, referring to the influence of aerodynamics on the silhouette. Three models were available, powered by the new 'Saturn' engine in 1.3 or 1.5 L ...

 (a captive import from Chrysler sold as the Dodge Colt
Dodge Colt
The Dodge Colt and the similar Plymouth Champ and Plymouth Colt, were subcompact cars sold by Dodge and Plymouth from 1970 to 1994. They were captive imports from Mitsubishi Motors, initially twins of the rear-wheel drive Galant and Lancer families before shifting to the smaller front-wheel drive...

), the Subaru DL
Subaru Leone
The Subaru Leone was a compact car produced by the Japanese car manufacturer Fuji Heavy Industries from 1971 to 1994. The word "leone" is Italian for lion....

, and later the Honda Accord
Honda Accord
The Honda Accord is a series of compact, mid-size and full-size automobiles manufactured by Honda since 1976, and sold in a majority of automotive markets throughout the world....

 all had four cylinder engines that were more fuel efficient in comparison to the typical V8 and six cylinder engines found in North American vehicles. From Europe, the Volkswagen Beetle
Volkswagen Beetle
The Volkswagen Type 1, widely known as the Volkswagen Beetle or Volkswagen Bug, is an economy car produced by the German auto maker Volkswagen from 1938 until 2003...

, the Volkswagen Fastback
Volkswagen Type 3
The Volkswagen Type 3 was a range of small cars from German manufacturer Volkswagen , introduced at the 1961 Frankfurt Motor Show, Internationale Automobil-Ausstellung ....

, the Renault 8
Renault 8
The Renault 8 and Renault 10 are two small family cars produced by the French manufacturer Renault in the 1960s and early 1970s....

, the Renault LeCar
Renault 5
The Renault 5 was first unveiled on 10 December 1971, being launched at the beginning of 1972.The Renault 5 was styled by Michel Boué, who died before the car's release, the R5 featured a steeply sloping rear hatchback and front dashboard...

, and the Fiat Brava
Fiat 131
The Fiat 131, additionally called "Mirafiori", is a small/medium family car produced by the Italian car manufacturer Fiat from 1974 to 1984. It was exhibited at 1974 Turin Motor Show....

 were also offered. As buyers began exchanging large cars for the smaller imported ones, Detroit responded with the Ford Pinto
Ford Pinto
The Ford Pinto is a subcompact car produced by the Ford Motor Company for the model years 1971–1980. The car's name derives from the Pinto horse. Initially offered as a two-door sedan, Ford offered "Runabout" hatchback and wagon models the following year, competing in the U.S. market with the AMC...

, the Ford Maverick, the Chevrolet Vega
GM H platform (RWD)
The General Motors H platform or H-body is an automobile platform designation used for the 1971–1980 model year rear wheel drive line of subcompact cars...

, the Chevrolet Nova
GM X platform
There have been two X-body automobile platforms from General Motors. All X-bodies were small entry-level models.-Rear wheel drive:The rear-wheel drive X-body underpinned the Chevrolet Nova and similar cars of the late 1960s and 1970s. It was also the basis for the Cadillac Seville's K platform...

, the Plymouth Valliant
Chrysler A platform
Chrysler's A platform was the basis for smaller rear wheel drive cars in the 1960s. These cars are sometimes referred to as A-body cars.Cars using the A platform in various markets around the world include:* 1960-1976 Plymouth Valiant...

, and the Plymouth Volaré
Chrysler F platform
Chrysler's rear wheel drive F platform was used from 1976 to 1980. It was replaced by the nearly identical Chrysler M platform. There were two wheelbases: 108.7 in for 2-door models, and 112.7 in for four-doors. As the market evolved, these would be marketed as mid-size and eventually...

.

Some buyers lamented the small size of the first compacts that came from Japan, and both Toyota and Nissan (known as Datsun during the 1970s) introduced larger cars called the Toyota Corona Mark II, replaced by the Toyota Cressida
Toyota Cressida
The Toyota Cressida was a mid-size sedan marketed by Toyota from December 1976 to February 1993 through four generations. It was the flagship sedan of Toyota in the United States. The same chassis with slightly different bodies was available in other countries as the Toyota Mark II, Toyota Chaser...

, the Mazda 616, and Datsun 810
Nissan Maxima
The first car to wear the Maxima name was introduced in 1981. It was essentially a Japanese-market Bluebird 910 with a longer nose. The car was offered as the 810 Deluxe or 810 Maxima that first year, and all 810s became Maximas for 1982...

 which gave buyers increased passenger space and some luxury amenities, such as air conditioning, power steering, AM-FM radios, and even power windows and central locking without increasing the price of the vehicle. These larger compacts were at the very limit of Japanese government regulations concerning size and engine displacement so that they could still be affordable in the Japanese Domestic Market, yet offer export buyers larger cars that sacrificed fuel economy for passenger accommodation and a higher price. Toyota also sold the Toyota Crown from 1965 to 1974 with very limited amount of sales.

Compact trucks were also introduced to the USA, with the Toyota Hilux
Toyota Hilux
The Toyota Hilux is a series of compact pickup trucks produced and marketed by the Toyota Motor Corporation. Most countries used the Hilux name for the entire life of the series but in North America, the Hilux name was retired in 1976 in favor of Truck, Pickup Truck, or Compact Truck...

 and the Datsun Truck
Datsun Truck
The popular and economical Datsun/Nissan compact pickup truck was produced in Japan from 1955 and imported to the United States, Australia, Finland, the Middle East, South Africa, and various European countries...

, followed by the Mazda Truck also sold as the Ford Courier
Ford Courier
- North America :This was a commercial model based on Ford's full-size stationwagon line. Its model code was designated 78A.From 1952 to 1956 access to the rear storage area was through a unique door hinged on the side. For 1957 and 1958, the rear access door was a combination of the lift gate and...

, with Isuzu selling their compact truck as the Chevrolet LUV
Chevrolet LUV
The Chevrolet LUV is a pickup truck marketed in the Americas since 1972 by Chevrolet, a division of General Motors . All generations of the LUV pickup have been Japanese Isuzu designs...

.

An increase in imported cars into North America forced the Big Three (General Motors
General Motors
General Motors Company , commonly known as GM, formerly incorporated as General Motors Corporation, is an American multinational automotive corporation headquartered in Detroit, Michigan and the world's second-largest automaker in 2010...

, Ford, and Chrysler
Chrysler
Chrysler Group LLC is a multinational automaker headquartered in Auburn Hills, Michigan, USA. Chrysler was first organized as the Chrysler Corporation in 1925....

) to introduce smaller and fuel-efficient models for domestic sales. The Dodge Omni
Dodge Omni
The Dodge Omni and the similar Plymouth Horizon were front wheel drive cars introduced by the Dodge and Plymouth divisions of the Chrysler Corporation in North America in 1978, and were based on a European Simca-based design of the same name...

 / Plymouth Horizon from Chrysler, the Ford Fiesta
Ford Fiesta
The Ford Fiesta is a front wheel drive supermini/subcompact manufactured and marketed by Ford Motor Company and built in Europe, Brazil, Argentina, Mexico, Venezuela, China, India, Thailand and South Africa...

, and the Chevrolet Chevette
Chevrolet Chevette
The Chevrolet Chevette was introduced in September, 1975 and manufactured for model years 1976-1987 based on GM's worldwide T platform and superseding the Vega as Chevrolet's entry-level subcompact...

 all had four-cylinder engines and room for at least four passengers by the late '70s. By 1985, the average American vehicle received 17.4 miles per gallon, compared to 13.5 miles per gallon in 1970. The improvements stayed even though the price of a barrel of oil remained constant at $12 from 1974 to 1979.

While at the same time these new imports were major inroads in the American market, sales of large sedans for most makes (except Chrysler
Chrysler
Chrysler Group LLC is a multinational automaker headquartered in Auburn Hills, Michigan, USA. Chrysler was first organized as the Chrysler Corporation in 1925....

 products) recovered within two model years of the 73’ Oil Crisis. Sales of models such as the Cadillac DeVille
Cadillac DeVille
The de Ville was originally a trim level and later a model of General Motors' Cadillac marque. The first car to bear the name was the 1949 Coupe de Ville, a prestige trim level of the Series 62 luxury coupe. The last model to be formally known as a de Ville was the 2005 Cadillac Deville, a...

, Buick Electra
Buick Electra
The Buick Electra was a full-size premium automobile built by the Buick division of General Motors. The Electra name was used by Buick between 1959 and 1990.- 1959–1960 :...

, Oldsmobile 98
Oldsmobile 98
The Oldsmobile 98 was a full-size automobile and the flagship model of the Oldsmobile division of General Motors. The name first appeared in 1941 and was used again after American consumer automobile production resumed post-World War II...

, Lincoln Continental
Lincoln Continental
The Lincoln Continental is an automobile which was produced by the Lincoln division of Ford Motor Company from 1939 to 1948 and again from 1956 to 2002...

, Mercury Marquis
Mercury Marquis
These were known as the "Continental Styling" years, as Mercury was trying to market itself as an affordable Lincoln, rather than a more expensive Ford...

, and various other luxury oriented sedans became popular again in the mid-70s. The only full-size models to see permanent reductions in sales were the lower price models; such as the Chevrolet Impala
Chevrolet Impala
The Chevrolet Impala is a full-size automobile built by the Chevrolet division of General Motors introduced for the 1958 model year. Deriving its name from the southern African antelope, Chevrolet's most expensive passenger model through 1965 had become the best-selling automobile in the United...

, and Ford Galaxie 500. At the same time, slightly smaller, if not entirely more fuel efficient mid-size models such as the Oldsmobile Cutlass
Oldsmobile Cutlass
The Oldsmobile Cutlass is a line of automobiles made by the Oldsmobile division of General Motors. The Cutlass began as a unibody compact car, but saw its greatest success as a body-on-frame intermediate car....

, Chevrolet Monte Carlo
Chevrolet Monte Carlo
The Chevrolet Monte Carlo was an American-made two-door coupe introduced for model year 1970, and manufactured over six generations through model year 2007. It was marketed as a personal-luxury coupe through most of its history, with the last model version being classified as a full-sized coupe...

, Ford Thunderbird
Ford Thunderbird
The Thunderbird , is an automobile manufactured by the Ford Motor Company in the United States over eleven model generations from 1955 through 2005...

 and various other models sold well.

This led to the somewhat odd juxtaposition of small economical imports introducing themselves as major elements of the market, while at the same time heavy, expensive, largely impractical vehicles (with 7 mpg; Lincoln sold 80,321 Mark Vs
Lincoln Continental Mark V
The Lincoln Continental Mark V was a large coupe sold by Lincoln, the Ford Motor Company's luxury division, between the 1977 and 1979 model years. The Mark V was a restyled Mark IV, replacing that car's more rounded styling with a more squared-off, sharp-edged detailing. The Mark V was highly...

 in 77) selling alongside the new imports in equally impressive numbers. In 1976; Toyota, with an average weight around 2,100 lbs sold 346,920 cars in the United States, while Cadillac with an average weight around 5,000 lbs sold 309,139 cars.

Federal safety standards, such as NHTSA Federal Motor Vehicle Safety Standard 215 (pertaining to safety bumpers), and compacts like the 1974 Mustang II were a prelude to the DOT "downsize" revision of vehicle categories. By 1977, GM's full-sized cars reflected on the 1973 oil crisis and preceded later DOT downsizing. By 1979, virtually all the big "full size" American cars were "downsized", featuring smaller engines and smaller dimensions outside. Chrysler Corporation 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
Chrysler M platform
The M-Bodies were Chrysler Corporation's successor to the F-body Aspen/Volare. The platform, almost identical to the F, was introduced in 1977 and was the basis for some mid-sized Chrysler models until its demise in 1989. The M-body was also the successor to the short-lived R-body, as the Chrysler...

 Dodge Diplomat
Dodge Diplomat
The Dodge Diplomat is an American mid-size car made from 1977 to 1989. It is substantially identical to the Chrysler- and Plymouth-branded versions of Chrysler's M-body cars, including the Chrysler LeBaron and New Yorker Fifth Avenue and the Plymouth Gran Fury in the U.S. market and the Plymouth...

/Plymouth Gran Fury
Plymouth Gran Fury
The Plymouth Gran Fury is an automobile manufactured by the Chrysler Corporation to signify Plymouth's largest full-size automobile from 1975 to 1977. The nameplate would be used on successive downsizings, first in 1980, and again in 1982, through what would originally have been intermediate and...

 and Chrysler New Yorker Fifth Avenue sedans).

It has been suggested that if mass production of overdrive transmissions
Overdrive (mechanics)
Overdrive is a term used to describe a mechanism that allows an automobile to cruise at sustained speed with reduced engine RPM, leading to better fuel economy, lower noise and lower wear...

 had been introduced, there would not have actually been any vehicle downsizing. But since this has actually happened it turns out not to be true.

See also



  • Hubbert peak theory
    Hubbert peak theory
    The Hubbert peak theory posits that for any given geographical area, from an individual oil-producing region to the planet as a whole, the rate of petroleum production tends to follow a bell-shaped curve...

  • Supply shock
    Supply shock
    A supply shock is an event that suddenly changes the price of a commodity or service. It may be caused by a sudden increase or decrease in the supply of a particular good. This sudden change affects the equilibrium price....

  • 1967 Oil Embargo
    1967 Oil Embargo
    The 1967 Oil Embargo began on June 6, 1967, one day after the beginning of the Six-Day War, with a joint Arab decision to deter any countries from supporting Israel militarily. Several Middle Eastern countries eventually limited their oil shipments, some embargoing only the United States and the...

  • 1970s Energy Crisis
    1970s energy crisis
    The 1970s energy crisis was a period in which the major industrial countries of the world, particularly the United States, faced substantial shortages, both perceived and real, of petroleum...

  • 1990 spike in the price of oil
  • 2000s energy crisis

Further reading

  • Alan S. Blinder, Economic Policy and the Great Stagflation (New York: Academic Press, 1979)
  • Otto Eckstein, The Great Recession (Amsterdam: North-Holland, 1979)
  • Mark E. Rupert and David P. Rapkin, "The Erosion of U.S. Leadership Capabilities"
  • Paul M. Johnson and William R. Thompson, eds., Rhythms in Politics and Economics (New York: Praeger, 1985)

External links