The
1973 oil crisis started in October 1973, when the members of
Organization of Arab Petroleum Exporting CountriesThe Organization of Arab Petroleum Exporting Countries or OAPEC is a multi-governmental organization headquartered in Kuwait which coordinates energy policies in Arab nations, and whose main stated purpose is developmental.-History:...
or the OAPEC (consisting of the
ArabArab people or Arabs are an ethnic group whose members identify along linguistic, cultural or genealogical grounds...
members of
OPECThe Organization of the Petroleum Exporting Countries is a cartel of twelve 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...
, plus
EgyptEgypt , officially the Arab Republic of Egypt, is a country mainly in North Africa, with the Sinai Peninsula forming a land bridge in Western Asia...
and
SyriaSyria , 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....
) proclaimed an oil
embargoAn embargo is the prohibition of commerce and trade with a certain country, in order to isolate it and to put its government into a difficult internal situation, given that the effects of the embargo are often able to make its economy suffer from the initiative. It is similar to a blockade, as in...
" in response to the U.S. decision to re-supply the Israeli military" during the
Yom Kippur warThe 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 October 26, 1973, between Israel and a coalition of...
; it lasted until March 1974. OAPEC declared it would limit or stop
oilAn oil is any substance that is liquid at ambient temperatures and is hydrophobic but soluble in organic solvents. Oils have a high carbon and hydrogen content and are nonpolar substances. The general definition above includes compound classes with otherwise unrelated chemical structures,...
shipments to the
United StatesThe United States of America is a federal constitutional republic comprising fifty states and a federal district...
and other countries if they supported
IsraelIsrael officially the State of Israel , is a developed state in Western Asia located on the eastern shore of the Mediterranean Sea. It borders Lebanon in the north, Syria in the northeast, Jordan in the east, and Egypt on the southwest, and contains geographically diverse features within its...
in the conflict. With the US actions seen as initiating the oil embargo, the long-term possibility of embargo-related high oil prices, disrupted supply and recession, created a strong rift within
NATOThe North Atlantic Treaty Organization ); ), also called "the Atlantic Alliance", is an intergovernmental military alliance based on the North Atlantic Treaty which was signed on April 4, 1949...
; both European nations and Japan sought to disassociate themselves from the US Middle East policy. Arab oil producers had also linked the end of the embargo with successful US 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 Henry Kissinger 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 the Golan Heights.
Independently, the OPEC members agreed to use their leverage over the world price-setting mechanism for
oilPetroleum or crude oil is a naturally occurring, flammable liquid found in rock formations in the Earth consisting of a complex mixture of hydrocarbons of various molecular weights, plus other organic compounds.The term "petroleum" was first used in the treatise De Natura Fossilium, published in...
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.
For the most part, 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. However, the causality stated by this theory is often questioned. 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 DepressionThe 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
IranIran , officially the Islamic Republic of Iran is a country in Western Asia. The name Iran has been in use natively since the Sassanid period and came into international use from 1935, before which the country was known internationally as Persia...
, seven
ArabThe Arab World refers to Arabic-speaking countries stretching from the Atlantic Ocean in the west to the Arabian Sea in the east, and from the Mediterranean Sea in the north to the Horn of Africa and the Indian Ocean in the southeast...
countries, plus
VenezuelaVenezuela , officially titled Bolivarian Republic of Venezuela , is a tropical country on the northern coast of South America. It is a continental mainland with numerous islands located off its coastline in the Caribbean Sea...
,
IndonesiaThe Republic of Indonesia is a country in Southeast Asia and Oceania. Indonesia comprises 17,508 islands. With an estimated population of around 237 million people, it is the world's fourth most populous country, with the world's largest population of Muslims.Indonesia is a republic, with an...
,
NigeriaNigeria , officially the Federal Republic of Nigeria, is a federal constitutional republic comprising thirty-six states and one Federal Capital Territory. 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...
, and
EcuadorEcuador , officially the Republic of Ecuador , literally, "Republic of the equator") 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 that...
, had been formed at a Baghdad conference on September 14, 1960. OPEC was organized to resist pressure by the
"Seven Sisters"The Seven Sisters of the petroleum industry is a term coined by an Italian entrepreneur, Enrico Mattei, that refers to seven oil companies that dominated mid 20th century oil production, refining, and distribution.-Origin and makeup:...
(mostly owned by U.S.,
BritishThe United Kingdom of Great Britain and Northern Ireland is a sovereign state located off the northwestern coast of continental Europe. It is an island country, spanning an archipelago including Great Britain, the northeastern part of Ireland, and many small islands...
, and
DutchThe Netherlands is a country in Northwestern Europe, constituting the major portion of the Kingdom of the Netherlands. It is a parliamentary democratic constitutional monarchy. The Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east...
nationals) to reduce
oil pricesThe price of petroleum as quoted in news generally refers to the spot price 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...
and payments to producing countries. At first it had operated as an informal bargaining unit for the sale of oil by resource-rich
Third WorldThe term Third World arose during the Cold War to define countries that remained non-aligned or neutral with either capitalism and NATO or communism and the Soviet Union...
nations. Initially, 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 however, 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
pulled outThe Nixon Shock was a series of economic measures taken by U.S. President Richard Nixon in 1971 including unilaterally canceling 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 AccordThe 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
depreciationCurrency 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 forthwith 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 started the
Yom Kippur WarThe 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 October 26, 1973, between Israel and a coalition of...
by launching a military attack on Israeli occupied territories captured in the 1967 Six Day War . 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
ShahShah is a Persian term for a king that has been adopted in many other languages.-Word history:"Shāh" was the title of Iranian kings including the Achaemenid dynasty which unified Persia and created a vast intercontinental empire...
of Iran, whose nation was the world's second-largest exporter of oil and the closest ally of the United States in the
Middle EastThe Middle East is a region that spans southwestern Asia, southeastern Europe, and northeastern Africa. It has no clear boundaries, often used as a synonym to Near East, in opposition to Far East...
at the time. "Of course [the world price of oil] is going to rise," the Shah told the
New York Times in 1973. "Certainly! And how...; You [Western nations] increased the price of
wheatWheat is a worldwide cultivated grass from the Fertile Crescent region of the Near East. 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
petrochemicalPetrochemicals are chemical products made from raw materials of petroleum or other hydrocarbon origin. Although some of the chemical compounds that originate from petroleum may also be derived from coal and natural gas, petroleum is the major source...
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 NixonRichard Milhous Nixon was the 37th President of the United States and is the only president to resign the office. He was also the 36th Vice President of the United States ....
authorized
Operation Nickel GrassOperation 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, Arab 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 NixonRichard Milhous Nixon was the 37th President of the United States and is the only president to resign the office. He was also the 36th Vice President of the United States ....
requested Congress to appropriate $2.2billion in emergency aid to Israel, including $1.5 billion in out-right grants.
LenczowskiGeorge 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 Arab response.” Libya announced it would embargo all oil shipments to the United States. Saudi Arabia and the other Arab states quickly followed suit, joining the embargo on October 20, 1973. At their meeting in Kuwait the Arab oil-producing countries, proclaimed the oil boycott 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
NetherlandsThe Netherlands is a country in Northwestern Europe, constituting the major portion of the Kingdom of the Netherlands. It is a parliamentary democratic constitutional monarchy. The Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east...
. The Netherlands had supplied arms to Israel and allowed the Americans to use Dutch airfields for supply runs to Israel. Price increases were also imposed. Since oil
demandPrice elasticity of demand is defined as the responsiveness of the quantity demanded of a good to a change in its price.In other words, it is percentage change in quantity demanded by the percentage change in price of the same commodity...
falls little when the price is raised, the prices had to be risen 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 agreementThe United Nations Monetary and Financial Conference, commonly known as 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 the...
, was set on a path of recessions and high
inflationIn 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 price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money – a loss of real...
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
inflationIn 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 price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money – a loss of real...
.
Chronology
- January 1973—The 1973–1974 stock market crash begins, as a result of inflation pressure, the Nixon Shock
The Nixon Shock was a series of economic measures taken by U.S. President Richard Nixon in 1971 including unilaterally canceling 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 systemThe 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
*Abdullah*Muhammad*Sara*Luluwa*Khalid*Saud*Sa'd*Abd al-Rahman*Bandar*Latifa*Munira*al-Jauhara*al-Anud*Misha'il*Fahda*Nura*Turki*Haifa...
and Egyptian president Anwar SadatMuhammad Anwar Al Sadat, or Anwar El Sadat , was the third President of Egypt, serving from 15 October 1970 until his assassination on 6 October 1981...
meet in RiyadhRiyadh is the capital and largest city of Saudi Arabia. It is also the capital of Riyadh Province, and belongs to the historical regions of Nejd and Al-Yamama. It is situated in the center of the Arabian Peninsula on a large plateau, and is home to 1,444,500 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.
- September 15—The Organization of Petroleum Exporting Countries (OPEC) declares a negotiating front, consisting of the 6 Persian Gulf States, to pressure for price increases based on the 1971 Tehran agreement, and an end to support of Israel.
- October 6—Egypt
Egypt , officially the Arab Republic of Egypt, is a country mainly in North Africa, with the Sinai Peninsula forming a land bridge in Western Asia...
and SyriaSyria , 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 IsraelIsrael officially the State of Israel , is a developed state in Western Asia located on the eastern shore of the Mediterranean Sea. It borders Lebanon in the north, Syria in the northeast, Jordan in the east, and Egypt on the southwest, and contains geographically diverse features within its...
on Yom KippurYom Kippur , also known as the Day of Forgiveness, is the holiest day of the year for religious 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 services...
, 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 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 , is an Arab country and the largest country of the Arabian Peninsula. It is bordered by Jordan on the northwest, Iraq on the north and northeast, Kuwait, Qatar, Bahrain, and the United Arab Emirates on the east, Oman on the southeast, and Yemen on the south...
, IranIran , officially the Islamic Republic of Iran is a country in Western Asia. The name Iran has been in use natively since the Sassanid period and came into international use from 1935, before which the country was known internationally as Persia...
, IraqIraq , officially the Republic of Iraq , also known as Mesopotamia, 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.Iraq shares borders with Jordan to the west, Syria...
, Abu DhabiAbu Dhabi is the capital of, and the second largest city in the United Arab Emirates. Abu Dhabi lies on a T-shaped island jutting into the Persian Gulf from the central western coast...
, KuwaitThe State of Kuwait is a sovereign Arab emirate bordered by Saudi Arabia to the south and Iraq to the north and west. The greatest distance from north to south is 200 km and from east to west 170 km . The name is a diminutive of an Arabic word meaning "fortress built near water." It has a...
, and QatarQatar , also known as the State of Qatar or locally ', is an Arab emirate in the Middle East, occupying the small Qatar Peninsula on the northeasterly coast of the larger Arabian Peninsula...
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 Milhous Nixon was the 37th President of the United States and is the only president to resign the office. He was also the 36th Vice President of the United States ....
requests Congress to appropriate $2.2billion in emergency aid to Israel. This decision triggered a collective Arab response. LibyaLibya , officially the Great Socialist People's Libyan Arab Jamahiriya , is a country located in North Africa...
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 , officially the Portuguese Republic , is a country located in southwestern Europe on the Iberian Peninsula. Portugal is the westernmost country of mainland Europe and is bordered by the Atlantic Ocean to the west and south and by Spain to the north and east...
, RhodesiaWhen the former colony of Northern Rhodesia changed its name to Zambia on independence in 1964, the colony of Southern Rhodesia changed its name to just plain 'Rhodesia'. The change had not yet been officialy ratified when Rhodesia declared itself independent on 11 November 1965...
, and South AfricaThe Republic of South Africa is a country located at the southern tip of Africa, with a coastline on the Atlantic and Indian Oceans. To the north lie Namibia, Botswana and Zimbabwe, to the east are Mozambique and Swaziland, while Lesotho is an independent country surrounded by South Africa.Modern...
.
- November 27—U.S. President Richard Nixon
Richard Milhous Nixon was the 37th President of the United States and is the only president to resign the office. He was also the 36th Vice President of the United States ....
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 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
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 President's Cabinet and the highest-ranking cabinet secretary both in line of succession and order of precedence. The current Secretary of...
Henry KissingerHenry Alfred Kissinger , is a German-born American political scientist, diplomat, and recipient of the Nobel Peace Prize. He served as National Security Advisor and later concurrently as Secretary of State in the Nixon Administration....
unveils the Project IndependenceProject 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 , officially the People's Democratic Republic of Algeria, is a country located in North Africa. It is the largest country on the Mediterranean sea, the second largest on the African continent and the eleventh-largest country in the world in terms of land area.It is bordered by Tunisia in...
, 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 of the embargo
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$12 per
barrelThe barrel is the name of several units of volume, generally in the range of about 100–200 litres .-Dry goods:* US dry barrel: 7,056 cubic inches ....
(75 US$/m
3).
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 are timely operations, and usually produce 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
nationalizationNationalization, also spelled nationalisation, is the act of taking an industry or assets into the public ownership of 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 state...
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 YamaniAhmed 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. Meanwhile,
New York Stock ExchangeThe New York Stock Exchange is a stock exchange located at 11 Wall Street in lower Manhattan, New York City, New York, USA. It is the largest stock exchange in the world by United States dollar value of its listed companies' securities...
shares lost $97 billion in value in six weeks. State governments requested citizens not put up
Christmas lightsThe use of decorative, festive lighting during the Christmas holiday season is a long standing tradition in many Christian cultures, and has been adopted as a secular practice in a number of other non-Christian, or non-predominantly Christian, cultures .While the use of celebratory lighting during...
, with
OregonOregon 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
EuropeEurope is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally divided from Asia to its east by the water divide of the Ural Mountains, the Ural River, the Caspian Sea, the Caucasus Mountains , and the Black Sea to the southeast...
. Of the nine members of the
European Economic CommunityThe European Economic Community was an international organisation that existed between 1958 and 1993 which was created to bring about economic integration between Belgium, France, Germany, Italy, Luxembourg and the Netherlands.It was...
(EEC), the
NetherlandsThe Netherlands is a country in Northwestern Europe, constituting the major portion of the Kingdom of the Netherlands. It is a parliamentary democratic constitutional monarchy. The Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east...
faced a complete embargo, the
United KingdomThe United Kingdom of Great Britain and Northern Ireland is a sovereign state located off the northwestern coast of continental Europe. It is an island country, spanning an archipelago including Great Britain, the northeastern part of Ireland, and many small islands...
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 WilsonJames Harold Wilson, Baron Wilson of Rievaulx, KG, OBE, FRS, PC was a British Labour Party politician; one of the most prominent British politicians of the latter half of the 20th century, he served two terms as Prime Minister of the United Kingdom, firstly from 1964 to 1970, and again from 1974...
's government had supported the Israelis during the Six Day War, but his successor,
Ted HeathSir Edward Richard George Heath, KG, MBE , often known as Ted Heath, was Prime Minister of the United Kingdom from 1970 to 1974 and leader of the Conservative Party from 1965 to 1975...
, 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 over the winter of 1973-74, a major factor in the
change of governmentThe UK general election of February 1974 was held on 28 February 1974. It was the first of two United Kingdom general elections held that year, and the only election since the Second World War not to produce an overall majority in the House of Commons for the winning party, instead producing a hung...
). The UK,
GermanyGermany , officially the Federal Republic of Germany , is a country in Central Europe. It is bordered to the north by the North Sea, Denmark, and the Baltic Sea; to the east by Poland and the Czech Republic; to the south by Austria and Switzerland; and to the west by France, Luxembourg, Belgium,...
,
SwitzerlandSwitzerland , officially the Swiss Confederation , is a federal republic consisting of 26 states named cantons, with Bern as the seat of the federal authorities...
, and
NorwayNorway , officially the Kingdom of Norway, is a country in Northern Europe occupying the western portion of the Scandinavian Peninsula, as well as Jan Mayen and the Arctic archipelago of Svalbard under the Spitsbergen Treaty...
banned flying, driving and boating on Sundays.
SwedenSweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe...
rationed gasoline and heating oil. The
NetherlandsThe Netherlands is a country in Northwestern Europe, constituting the major portion of the Kingdom of the Netherlands. It is a parliamentary democratic constitutional monarchy. The Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east...
imposed prison sentences for those who used more than their given ration of
electricityElectricity is a general term that encompasses a variety of phenomena resulting from the presence and flow of electric charge...
. 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 explorationHydrocarbon 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 NixonRichard Milhous Nixon was the 37th President of the United States and is the only president to resign the office. He was also the 36th Vice President of the United States ....
named
William E. SimonWilliam 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 CzarEnergy 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 AssociationThe AAA , formerly known as the American Automobile Association, is a 50 million member North American not-for-profit automobile lobby group, service organization, and seller of vehicle insurance...
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 rationingOdd-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 plateA 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 yearA leap year is a year containing one or more extra days 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. A red flag denoted that no gasoline was available but the service station was open for other services.
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 crisisThe 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, allowing the Ayatollah Khomeini to gain control. The protests shattered the Iranian oil sector...
.
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
PennsylvaniaThe Commonwealth of Pennsylvania , often colloquially referred to as PA by natives and Northeasterners, is a state located in the Northeastern and Middle Atlantic regions of the United States...
and
OhioOhio is a Midwestern state of the United States. The thirty-fourth largest state by area in the U.S., it is the seventh-most populous with nearly 11.5 million residents...
, non-striking truckers were shot at by striking truckers, and in
ArkansasArkansas is a state located in the southern region of the United States. Its name is an Algonquin name of the Quapaw Indians. Arkansas shares a border with six states, with its eastern border largely defined by the Mississippi River. Its diverse geography ranges from the mountainous regions of the...
, trucks of non-strikers were attacked with
bombA bomb is any of a range of explosive devices that typically rely on the exothermic chemical reaction of an explosive material to produce an extremely sudden and violent release of energy. The word comes from the Greek word βόμβος , an onomatopoetic term with approximately the same meaning as...
s.
America had controlled the price of
natural gasNatural gas is a gas consisting primarily of methane. It is found associated with fossil fuels, in coal beds, as methane clathrates, and is created by methanogenic organisms in marshes, bogs, and landfills...
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 FordGerald Rudolph 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 limitThe 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 . This law was modified in 1987 to allow limits on certain roads....
of 55 mph (about 88 km/h) was imposed through the Emergency Highway Energy Conservation Act. Development of the United States
Strategic Petroleum ReserveThe Strategic Petroleum Reserve is an emergency fuel store of oil maintained by the United States Department of Energy.The US SPR is the largest emergency supply in the world with the current capacity to hold up to . The second largest emergency supply of oil is Japan's with a 2003 reported...
began in 1975, and in 1977, the cabinet-level
Department of EnergyThe 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 ActThe 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...
of 1978.
Year-round
daylight saving timeDaylight saving time is the convention of advancing clocks so that afternoons have more daylight and mornings have less. Typically clocks are adjusted forward one hour near the start of spring and are adjusted backward in autumn...
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."
After the
Corporate Average Fuel EconomyThe Corporate Average Fuel Economy regulations in the United States, first enacted by Congress in 1975, are federal regulations intended to improve the average fuel economy of cars and light trucks sold in the US in the wake of the 1973 Arab Oil Embargo...
(CAFE) standards were enacted by Congress in 1975, the
"Big Three" U.S. automakers'The Big Three, when used in relation to the automotive industry, most generally refers to the three major North American automotive companies: General Motors, Ford, and Chrysler...
began a U.S. Department of Transportation mandated downsizing of existing automobile categories to begin conforming to CAFE's 27.5 mile per gallon fuel consumption mandate. By 1980, there were no longer full-size luxury cars with a
wheelbaseIn 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 DaytonaThe Rolex 24 at Daytona is a 24-hour sports car endurance race held annually at Daytona International Speedway in Daytona Beach, Florida. It is held on a combined road course, utilizing portions of the NASCAR tri-oval and an infield road course...
was canceled and
NASCARThe 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
Indianapolis 500The Indianapolis 500-Mile Race, often shortened to Indianapolis 500 or Indy 500 or sometimes known simply as The 500, is an American automobile race, held annually over the Memorial Day weekend at the Indianapolis Motor Speedway in Speedway, Indiana...
qualifying round was reduced from four days down to two, and several days of practice were eliminated. The
12 Hours of SebringThe 12 Hours of Sebring is an annual motorsport endurance race held at Sebring International Raceway, a former Army Air Force base in Sebring, Florida.- History :...
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.
Search for alternatives
The energy crisis led to greater interest in
renewable energyRenewable energy is energy generated from natural resources—such as sunlight, wind, rain, tides, and geothermal heat—which are renewable . In 2006, about 18% of global final energy consumption came from renewables, with 13% coming from traditional biomass, such as wood-burning...
and spurred research in
solar powerSolar 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 powerWind power is the conversion of wind energy into a useful form of energy, such as electricity, using wind turbines. At the end of 2008, worldwide nameplate capacity of wind-powered generators was 121.2 gigawatts . In 2008, wind power produced about 1.5% of worldwide electricity usage; and is...
. It also led to greater pressure to exploit
North AmericaNorth America is the northern continent of the Americas, situated in the Earth's northern hemisphere and in the western hemisphere. It is bordered on the north by the Arctic Ocean, on the east by the North Atlantic Ocean, on the southeast by the Caribbean Sea, and on the west by the North Pacific...
n oil sources, and increased the West's dependence on
coalCoal is a readily combustible black or brownish-black sedimentary rock normally occurring in rock strata in layers or veins called coal beds. The harder forms, such as anthracite coal, can be regarded as metamorphic rock because of later exposure to elevated temperature and pressure...
and
nuclearA nuclear reactor is a device in which nuclear chain reactions are initiated, controlled, and sustained at a steady rate.The most significant use of nuclear reactors is as an energy source for the generation of electrical power and for the power in some ships...
power. This included increased interest in mass transit.
In
AustraliaAustralia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the continental mainland , the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans...
, 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 gasNatural gas is a gas consisting primarily of methane. It is found associated with fossil fuels, in coal beds, as methane clathrates, and is created by methanogenic organisms in marshes, bogs, and landfills...
or
propanePropane is a three-carbon alkane, normally a gas, but compressible to a transportable liquid. It is derived from other petroleum products during oil or natural gas processing...
were introduced.
For the handful of industrialized nations that were net energy exporters, the effects of the oil crisis were very different. In
CanadaCanada is a country occupying most of northern North America, extending from the Atlantic Ocean in the east to the Pacific Ocean in the west and northward into the Arctic Ocean...
the industrial east suffered many of the same problems of the United States. In oil rich
AlbertaAlberta is one of Canada's prairie provinces. It became a province on September 1, 1905.Alberta is located in western Canada, bounded by the provinces of British Columbia to the west and Saskatchewan to the east, the Northwest Territories to the north, and the U.S. state of Montana to the south....
, 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-CanadaPetro-Canada was a Canadian oil and gas firm. Its headquarters were in the Petro-Canada Centre in Calgary, Alberta. On August 1, 2009, Petro-Canada merged with Suncor Energy...
and later the
National Energy ProgramThe National Energy Program was an energy policy of the Government of Canada. It was enacted by the government of Prime Minister Pierre Trudeau in 1980, and administered by the Department of Energy, Mines and Resources.-Description:...
. These efforts produced a great deal of anger in the west producing a sentiment of alienation 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
stagflationStagflation is an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a significant period of time. The portmanteau stagflation is generally attributed to British politician Iain Macleod, who coined the term in a speech to Parliament in 1965...
hit Canada as hard as the United States despite Canadian fuel reserves.
The
Soviet UnionThe Union of Soviet Socialist Republics was a constitutionally socialist state that existed in Eurasia from 1922 to 1991. The name is a translation of the , tr. Soyuz Sovetskikh Sotsialisticheskikh Respublik, abbreviated СССР, SSSR. The common short name is Soviet Union, from , Sovetskiy Soyuz...
was also a net oil exporter. The Soviet economy had stagnated for several years, and the increase in the price of oil had a beneficial effect, especially after the bloc's
internal terms of tradeThe Comprehensive Program for Socialist Economic Integration was set up in 1971, and laid the guidelines for Comecon activity until 1990. The distinction between "market" relations and "planned" relations—made in the discussions within Comecon prior to the adoption of the 1971 Comprehensive...
were adjusted to reflect the increased value of Russian oil. The increase in foreign currency reserves allowed the import of grain and other foodstuffs from abroad, and increased production of consumer goods and kept military spending at its traditional levels. Some historians believe the windfall in oil revenues during this period kept the Soviet Union in existence for a considerably longer period of time than would otherwise have occurred.
The
BrazilBrazil , officially the Federative Republic of Brazil , is a country in South America. It is the fifth largest country by geographical area, occupying nearly half of South America, the fifth most populous country, and the fourth most populous democracy in the world. Bounded by the Atlantic Ocean...
ian government implemented a very large project called "Proálcool" (pro-alcohol) that mixed
ethanolEthanol, also called ethyl alcohol, pure alcohol, grain alcohol, or drinking alcohol, is a volatile, flammable, colorless liquid. It is a psychoactive drug, best known as the type of alcohol found in alcoholic beverages and in modern thermometers. Ethanol is one of the oldest recreational drugs...
with gasoline for automotive fuel. This project, which produces ethanol from sugar cane, continues, and has reduced oil imports and decreased the price of fuel.
To supplement
IsraelIsrael officially the State of Israel , is a developed state in Western Asia located on the eastern shore of the Mediterranean Sea. It borders Lebanon in the north, Syria in the northeast, Jordan in the east, and Egypt on the southwest, and contains geographically diverse features within its...
's over-taxed power grid,
Harry Zvi TaborHarry 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 industrySolar 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 their 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
electronicsElectronics is a branch of science and technology that deals with the controlled flow of electrons. The ability to control electron flow is usually applied to information handling or device control. Electronics is distinct from electrical science and technology, which deals with the generation,...
. 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 bankA central bank, reserve bank, or monetary authority is a banking institution granted the exclusive privilege to a lend a government its currency...
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
stagflationStagflation is an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a significant period of time. The portmanteau stagflation is generally attributed to British politician Iain Macleod, who coined the term in a speech to Parliament in 1965...
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 500The 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 WarThe Cold War was the continuing state of political conflict, military tension, and economic competition existing after World War II , primarily between the USSR and its satellite states, and the powers of the Western world, including the United States...
policies of the Nixon administration also suffered a major blow in the aftermath of the oil embargo. They had focused on
ChinaThe People's Republic of China , commonly known as China, is the largest country in East Asia and the most populous in the world with over 1.3 billion people, approximately one-fifth of the world's population...
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 AmericaLatin America is a region of the Americas where Romance languages – particularly Spanish, Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,501 km² , almost 3.9% of the Earth's surface or 14.1% of its land surface area...
.
The oil embargo was announced roughly one month after a right-wing military coup in
ChileChile, 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 PinochetAugusto José Ramón Pinochet Ugarte was a Chilean army general and later head of state as president. He was the Commander in Chief of the Chilean army from 1973 to 1998, president of the Government Junta of Chile from 1973 to 1981 and President of the Republic from 1974 until the return of...
Chilean coup of 1973The Chilean coup d'état of 1973 was a watershed event in the history of Chile and the Soviet-American Cold War. On 11 September 1973, the government of President Salvador Allende was overthrown by the military in a coup d’état....
toppled socialist president
Salvador AllendeSalvador Isabelino Allende Gossens was a physician and the first democratically elected Marxist socialist to become president of a state in the Americas....
on September 11, 1973. The United States' subsequent assistance to this government did little to curb the activities of socialist
guerrillaGuerrilla warfare is the irregular warfare warfare and combat in which a small group of combatants use mobile military tactics in the form of ambushes and raids to combat a larger and less mobile formal army....
s 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 NationsThe United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and the achieving 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.
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 pricesThe 1980s oil glut was a surplus of crude oil caused by falling demand following the 1973 and 1979 energy crises. The world price of oil, which had peaked in 1980 at over US$35 per barrel, fell in 1986 from $27 to below $10...
, 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 crisisThe 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, allowing the Ayatollah Khomeini to gain control. The protests shattered the Iranian oil sector...
, at more than US$80 per barrel, decreased during the early 1980s to US$38 per barrel (239 US$/m
3). 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 demandPrice elasticity of demand is defined as the responsiveness of the quantity demanded of a good to a change in its price.In other words, it is percentage change in quantity demanded by the percentage change in price of the same commodity...
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 powerNuclear power is power produced from controlled nuclear reactions. Commercial plants in use to date use nuclear fission reactions....
and
natural gasNatural gas is a gas consisting primarily of methane. It is found associated with fossil fuels, in coal beds, as methane clathrates, and is created by methanogenic organisms in marshes, bogs, and landfills...
, home heating from natural gas and
ethanolEthanol, also called ethyl alcohol, pure alcohol, grain alcohol, or drinking alcohol, is a volatile, flammable, colorless liquid. It is a psychoactive drug, best known as the type of alcohol found in alcoholic beverages and in modern thermometers. Ethanol is one of the oldest recreational drugs...
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 GulfThe Persian Gulf, in the Southwest Asian region, is an extension of the Indian Ocean located between Iran and the Arabian Peninsula. Historically and commonly known as the Persian Gulf, this body of water is sometimes controversially referred to as the Arabian Gulf by most Arab states or simply The...
region. For a handful of heavily populated, impoverished countries, whose economies were largely dependent on oil — including
MexicoThe United Mexican States , commonly known as Mexico , is a federal constitutional republic in North America. It is bordered on the north by the United States; on the south and west by the Pacific Ocean; on the southeast by Guatemala, Belize, and the Caribbean Sea; and on the east by the Gulf of...
,
NigeriaNigeria , officially the Federal Republic of Nigeria, is a federal constitutional republic comprising thirty-six states and one Federal Capital Territory. 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...
,
AlgeriaAlgeria , officially the People's Democratic Republic of Algeria, is a country located in North Africa. It is the largest country on the Mediterranean sea, the second largest on the African continent and the eleventh-largest country in the world in terms of land area.It is bordered by Tunisia in...
, and
LibyaLibya , officially the Great Socialist People's Libyan Arab Jamahiriya , is a country located in North Africa...
— 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 oilPetroleum politics have been an increasingly important aspect of international diplomacy since the rise of the oil industry in the Middle East in the early 20th century...
still proves dangerous for all concerned to this day.
Long-term effects
Despite efforts by the Arab states to use the "oil weapon" to display Western energy vulnerability and the futility of maintaining a heavy-handed pro-Israeli policy, it can be argued that the Arab states ultimately traded diplomatic gains for ever-increasing dependence on the West for economic and military security. The sharp reaction by the United States, Western Europe and Japan, the Soviet Union, and the influx of new oil wealth, had dire effects for the Arab states in the years following the 1973 Yom Kippur War and OPEC embargo. 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
AlaskaAlaska is the largest state of the United States of America 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 SeaThe North Sea is a marginal, epeiric sea on the European continental shelf. The Dover Strait and the English Channel in the south and the Norwegian Sea in the north connect it to the Atlantic Ocean. It is more than long and wide, with an area of around...
, the
Caspian SeaThe 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. It has a surface area of 371,000 square kilometres and a volume of 78,200 cubic kilometres...
, and
CaucasusThe Caucasus or Caucas is a geopolitical region between at the border of Europe and Asia. It is home to the Caucasus Mountains, including Europe's highest mountain ....
.
Soviet reaction
Prior to the ascendence of Mohammed Anwar Al Sadat 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
SiberiaSiberia , is the vast region constituting almost all of Northern Asia and for the most part currently serving as the massive central and eastern portion of the Russian Federation, having served in the same capacity previously for the USSR from its beginning, and the Russian Empire beginning in the...
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 AfghanistanThe Soviet War in Afghanistan, also known as the Soviet–Afghan War, was a nine-year conflict involving the Soviet Union, supporting the Marxist government of the Democratic Republic of Afghanistan at their own request, against the Islamist Mujahideen Resistance...
, 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 GulfThe Persian Gulf, in the Southwest Asian region, is an extension of the Indian Ocean located between Iran and the Arabian Peninsula. Historically and commonly known as the Persian Gulf, this body of water is sometimes controversially referred to as the Arabian Gulf by most Arab states or simply The...
and using increased revenues on disproportionately powerful military forces. By 1979, Saudi weapon purchases from the United States was 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 MosqueThe Grand Mosque Seizure on November 20, 1979, was an armed attack and takeover by armed Islamic fundamentalist dissidents of the Al-Masjid al-Haram in Mecca, Saudi Arabia, the holiest place in Islam...
in
MeccaMecca , sometimes spelled Makkah is the holiest meeting site of the Islamic religion. The city is modern, cosmopolitan and whilst being closed to non-Muslims is nonetheless ethnically diverse.Islamic tradition attributes the beginning of Mecca to Ishmael's descendants...
by Wahhabi extremists during November and a Shia revolt in al-Hasa 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 costOpportunity cost or economic opportunity loss is the value of the next best alternative foregone as the result of making a decision. Opportunity cost analysis is an important part of a company's decision-making processes but is not treated as an actual cost in any financial statement...
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.
Impact on West European motor industry
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 104The 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 5The Renault 5 was a supermini produced by the French automaker Renault in two generations between 1972 and 1996. It was sold in many markets, usually as the Renault 5 and in North America as Le Car, from 1976 to 1986...
and
Fiat 127The 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 FiestaThe Ford Fiesta is a small front wheel drive supermini car designed by the Ford Motor Company and built in Europe, Brazil, Argentina, Mexico, Venezuela, China, India and South Africa...
,
Opel KadettThe Opel Kadett is a small family car produced by the German automaker Opel between 1937 and 1940, then from 1962 to 1992.Delta in South Africa used the Opel Kadett name until 1999.-First generation :...
(sold as the
Vauxhall AstraAstra 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 BritainGreat Britain is an island lying to the northwest of Continental Europe. It is the ninth largest island in the world, and the largest European island. With a population of about 59.6 million people, it is the third most populated island on Earth. Great Britain is surrounded by over 1000 smaller...
),
Chrysler SunbeamThe 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
Citroen VisaThe Citroën Visa is a supermini that was produced by the French car marque Citroën from 1978 to 1988.-History:The Prototype Y of the early seventies, was originally developed in co-operation with Fiat to replace the 2CV based Citroën Ami that dated back to 1960...
.
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 HorizonThe 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 RitmoThe 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 Britain, Canada and the U.S. as the Fiat Strada...
(Strada in the UK), Ford Escort MK3,
Renault 14The Renault 14 is a small family car produced by the French manufacturer Renault between 1976 and 1983.Featuring front wheel drive, the 14 was developed as a competitor in the small family car segment, which had been opened up by the Volkswagen Golf...
,
Volvo 340 / 360The Volvo 300 series was a rear wheel drive automobile sold as both a hatchback and a conventional saloon from 1976-1991. It was launched in The Netherlands in 1976, shortly after Volvo acquired a controlling share of the passenger car division of DAF in 1975. The series consisted of the Volvo 343...
,
Opel KadettThe Opel Kadett is a small family car produced by the German automaker Opel between 1937 and 1940, then from 1962 to 1992.Delta in South Africa used the Opel Kadett name until 1999.-First generation :...
and
Volkswagen GolfThe Volkswagen Golf is a hatchback / small family car manufactured by Volkswagen since 1974 and marketed worldwide across six generations, in various body configurations and under various nameplates -- prominently as the Volkswagen Rabbit in the United States and Canada , and as the Volkswagen...
. 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.
Impact on U.S. motor industry
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 CapriceThe Chevrolet Caprice and Caprice Classic were full-sized automobiles produced by General Motors in the United States and Canada from 1965 through 1996 model years and in Mexico from 1977 through 1983....
was a 400-cubic inch (6.5 liter) V8. The wheelbase of this car was , and Motor Trends 1972 road test of the similar
Chevrolet ImpalaThe Chevrolet Impala is a full-size automobile built by the Chevrolet division of General Motors. One of America's most successful nameplates, the early Impala became the best-selling automobile when full-sized cars dominated sales, though the name was eventually revived in 2000 for a full-size...
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, which did not sell as well as the newly-introduced four-cylinder subcompacts and six-cylinder compacts- these small cars were in greater demand than the available supply. European and Japanese automakers began to export more compact cars into the US to meet the demand.
PeugeotPeugeot is a major French car brand, part of PSA Peugeot Citroën, the second largest European carmaker.Peugeot's roots go back to 19th-century coffee mill and bicycle manufacturing. The Peugeot company and family is originally from Sochaux, France. Peugeot retains a large manufacturing plant and...
,
VolkswagenThe Volkswagen Aktiengesellschaft , also known as Volkswagen Group or as VW, is an automobile manufacturer and mobility organisation based in Wolfsburg, Lower Saxony, Germany and is the pioneer brand within the Volkswagen Group, which contains the car brands Audi AG, Bentley Motors Ltd.,...
, Toyota,
DatsunDatsun was an automobile marque. The name was created in 1931 by the DAT Motorcar Co. for a new car model, spelling it as "Datson" to indicate its smaller size when compared to the existing, larger DAT car. Later, in 1933 after Nissan Motor Co., Ltd...
,
Mazdais a Japanese automotive manufacturer based in Hiroshima, Japan.During 2007, Mazda produced almost 1.3 million vehicles for global sales...
, and
Hondais a Japanese multinational corporation primarily known as a manufacturer of automobiles and motorcycles. Honda is the world's largest manufacturer of motorcycles as well as the world's largest manufacturer of internal combustion engines measured by volume. Honda surpassed Nissan in 2001 to become...
sold in record numbers during this period.
This forced the Big Three (
General MotorsGeneral Motors Company, often known as simply GM, is a United States based automaker with headquarters in Detroit, Michigan. GM was the world's 18th largest corporate entity and third largest automaker as ranked by 2008 revenues on the Fortune Global 500. Ranked by global unit sales for 2008, it...
, Ford, and
ChryslerChrysler Group, LLC is an American automobile manufacturer headquartered in the Detroit suburb of Auburn Hills, Michigan. Chrysler was first organized as the Chrysler Corporation in 1925. From 1998 to 2007, Chrysler and its subsidiaries were part of the German based DaimlerChrysler AG...
) to introduce smaller and fuel-efficient models for domestic sales. The Chrysler Omni/Horizon,
Ford FiestaThe Ford Fiesta is a small front wheel drive supermini car designed by the Ford Motor Company and built in Europe, Brazil, Argentina, Mexico, Venezuela, China, India and South Africa...
,
Ford FairmontThe Ford Fairmont was a North American compact car, produced between 1978 and 1983.The 1978 Ford Fairmont was the first vehicle built on the Ford Fox platform, which would be the basis for a variety of other models, including the 1980 to 1988 Thunderbird, the 1981 to 1982 American Ford Granada, the...
, and the
Chevrolet ChevetteThe Chevrolet Chevette was introduced in September, 1975 and produced for the 1976 through 1987 model years. It is Chevrolet's version of GM's worldwide T platform which was also sold as the Vauxhall Chevette, Opel Kadett, Isuzu Gemini and the Holden Gemini, among others.-History:The T-car was...
all had four-cylinder engines and room for at least four passengers by the late '70s. But Toyota, Honda, and Nissan had by that time captured the market to a great degree with their models that offered better fuel mileage than their American competitors. 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 Co. products) recovered within two model years of the 73’ Oil Crisis. Sales of models such as the
Cadillac DeVilleDeVille 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...
,
Lincoln ContinentalThe Lincoln Continental was an automobile produced by the Lincoln division of Ford Motor Company between 1939 and 2002. Despite often sharing underpinnings with less-expensive Fords, the Continental was usually a distinctively styled, highly equipped luxury car.The flagship model Lincoln during...
,
Buick ElectraThe Buick Electra and the Buick Electra 225 are full-size premium automobiles built by the Buick division of General Motors. The Electra name was used by Buick between 1959 and 1990.- 1959–1960 :...
,
Oldsmobile 98The Oldsmobile 98 was a full-size automobile and the flagship 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...
,
Mercury MarquisThe Mercury Marquis is a vehicle produced by the Ford Motor Company under its Mercury brand from 1967 to 1986. It began as a full-size car, but became a mid-size in 1983. Continuing as a full-size was the former top-level trim line, Grand Marquis...
and various other of the more expensive sedans sold at new records in the late 70s. The only full-size models to see permanent reductions in sales were the lower price models; such as the
Chevrolet ImpalaThe Chevrolet Impala is a full-size automobile built by the Chevrolet division of General Motors. One of America's most successful nameplates, the early Impala became the best-selling automobile when full-sized cars dominated sales, though the name was eventually revived in 2000 for a full-size...
, and
Ford LTDThe Ford LTD was a car model name that has been used by the Ford Motor Company in North America.The LTD designation is considered by some an abbreviation of "Luxury Trim Decor" and by others as a limited body style classification for the Galaxie...
. At the same time, slightly smaller, if not entirely more fuel efficient mid-size models such as the phenomenally successful
Oldsmobile CutlassThe Oldsmobile Cutlass was 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 CarloThe Chevrolet Monte Carlo was an American-made automobile. Originally introduced by Chevrolet for the 1969 model year , it has gone through six generations as of 2007...
,
Ford ThunderbirdThe Thunderbird , is an automobile manufactured by the Ford Motor Company in the United States over thirteen model generations from 1955 through to 2005...
and various other models sold in incredible numbers.
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 VMark V or Mark 5 often refers to the fifth version of a product, frequently military hardware. "Mark", meaning "model" or "variant", can be abbreviated "Mk."Mark V or Mark 5 can specifically refer to:-In military and weaponry:...
s 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. The Chrysler Corporation ended production of their full-sized luxury sedans in 1981, moving instead to a full front wheel drive (except the M-Body) lineup.
It has been suggested that if mass production of
overdrive transmissionsOverdrive can refer to two different things.An overdrive is a device which was commonly used in automobiles to allow the choice of an extra-high overall gear ratio for high speed cruising, thus saving fuel, at the cost of less torque. Usually the final or top gear is called overdrive...
had been introduced, there would not have actually been any vehicle downsizing.
See also
- Energy crisis
An energy crisis is any great bottleneck in the supply of energy resources to an economy. In popular litterature though, it often refers to one of the energy sources used at a certain time and place.- Causes :...
- 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
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...
- 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, allowing the Ayatollah Khomeini to gain control. The protests shattered the Iranian oil sector...
- 1980s oil glut
The 1980s oil glut was a surplus of crude oil caused by falling demand following the 1973 and 1979 energy crises. The world price of oil, which had peaked in 1980 at over US$35 per barrel, fell in 1986 from $27 to below $10...
- 1990 spike in the price of oil
- Oil price increases since 2003
- 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...
- Boycott
A boycott is a form of consumer activism involving the act of voluntarily abstaining from using, buying, or dealing with a person, organization, or country as an expression of protest, usually for political reasons.-Etymology:...
- Embargo
An embargo is the prohibition of commerce and trade with a certain country, in order to isolate it and to put its government into a difficult internal situation, given that the effects of the embargo are often able to make its economy suffer from the initiative. It is similar to a blockade, as in...
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