Why Did Opec Increase Oil Prices in 1973 Apex

Why Did Opec Increase Oil Prices in 1973 Apex.

Written past: Gregory L. Schneider, Emporia State University

By the end of this department, yous volition:

  • Explain the various military and diplomatic responses to international developments over time
  • Explain how and why policies related to the environment developed and changed from 1968 to 1980

Suggested Sequencing

Utilize this Narrative in the showtime one-half of the chapter to discuss the touch on the 1973 oil crisis had on the economy and how it affected the growing environmental movement.


Later on an invasion by three Arab states in the Six Solar day War in 1967, Israel acquired the Sinai Peninsula from Egypt, the W Bank from Jordan, and the Golan Heights from Syrian arab republic. Six years afterward, on Oct 6, 1973, Anwar Sadat of Egypt and Hafez al-Assad of Syrian arab republic caught Israel by surprise with a massive set on on both its southern and northern borders. The Yom Kippur State of war that followed was and then named because it began on the High Holy Mean solar day of the Jewish organized religion.

The Nixon administration decided to come to State of israel’s rescue and resupplied its ground forces with weapons. Because of the Cold State of war and their friendships with Middle Eastern nations, the Soviets countered, supplying both Syrian arab republic and Arab republic of egypt with weapons. This led to fears on both sides of a major war between the superpowers as Nixon raised the defense condition (DefCon) level to 4 (on a calibration from 5 to ane, which was war) during the disharmonize. After three weeks of fighting, a United nations -brokered resolution ended the disharmonize, with State of israel remaining in control of territories information technology had gained in the 1967 war.

While the fighting was withal going on, on October 17, 1973, Kingdom of saudi arabia and the members of Organization of the Petroleum Exporting Countries (OPEC) wanted to punish the supporters of Israel by announcing a 5 percentage cutting in oil output. President Nixon and Congress responded by providing an additional $2.2 billion to the Israelis. That led to a Saudi conclusion, backed by OPEC, to go further and place an embargo on oil shipments to the United States and Western European countries, a decision that caused the first oil crunch of the 1970s.

Five nations – Islamic republic of iran, Republic of iraq, Kuwait, Saudi arabia, and Venezuela – had formed the OPEC cartel in 1960. With an boosted vii nations joining by 1973, OPEC countries’ production deemed for half the oil produced in the world. OPEC had powerful leverage in setting product output and in establishing a benchmark price for rough oil in the world. It was willing to use this leverage politically in a number of crises in the 1970s.

Through World War II, the United States had been the biggest producer of oil in the earth (a status information technology regained in 2018). Oil fields in Texas, Oklahoma, other states, and the Gulf of Mexico produced enough oil to maintain the cheap gasoline Americans enjoyed in the 1950s and 1960s. Past 1973, U.S. consumption of oil was also the highest in the world; with only 6 percent of the world’s population, the U.s. consumed ane-tertiary of the oil produced. Moreover, with tremendous industrial growth and the expansion of highways and car production, oil imports were increasingly necessary to sustain America’s economic expansion and growth. By the early 1970s, imports accounted for about thirty pct of the oil consumed in the Us, which had begun to curtail domestic production and exploration due to environmental concerns and governmental regulations.

The OPEC embargo showcased the new power of the cartel in the globe economy and struck many Americans as another example of their nation’s decline in the 1970s. When the embargo took hold, oil prices jumped from $ii per butt to $11. The touch hitting American consumers in their wallets as retail prices for gasoline soared by 40 per centum in Nov 1973 alone. Fearful of shortages of gasoline, Americans lined upwards at the pump to refuel while gas stations raised their prices several times per day. The gas lines exposed the panic that prepare in during the embargo as motorists worried that if they did not fill up today, so the price might be college tomorrow. Not surprisingly, with demand high, many stations ran out of fuel, and signs saying “Sorry, No Gas Today” became quite common in the late autumn months.

A man holds a gun and a boy holds a sign that reads,

During the 1973 oil crisis, a man and his son warn that gas thieves will be punished.

Nixon was diverted from the problem by the Watergate scandal. On October 20, 1973, he had fired the special prosecutor in the Watergate investigation, Archibald Cox, and found himself embattled because of his own cover-upward of the Republican burglary at the Democratic National Committee headquarters at the Watergate Hotel in June 1972. The Western European countries and Japan, fundamental allies of the United states, faced much more difficult problems with the embargo, because they relied on the OPEC states for 45 to 50 percent of their oil.

Even so, a break in the oil crisis came in January 1974 when National Security Advisor Henry Kissinger met with King Faisal of Saudi Arabia and persuaded him that the conditions for the embargo had ended with the end of the Yom Kippur war. More than importantly, Arab republic of egypt’s Sadat realized that the embargo was hurting his state’s image. After Kissinger negotiated the terms for reconciliation and helped terminate the embargo, Nixon visited Israel, Egypt, and Saudi Arabia in May 1974 and gained a massive outpouring of support from the Egyptian people, who welcomed the U.S. president, the starting time ever to visit Arab republic of egypt. Three months later, Nixon resigned the presidency.

President Nixon and President Hafez al-Assad shake hands in the middle of a group of Americans and Syrians.

President Nixon meeting with Syrian President Hafez al-Assad at Damascus, Syria, in July 1974.

Across the oil crisis, rising free energy costs were only one manifestation of the great inflation that ripped through the economies of the West during the 1970s. Prices rose for several reasons: expansion of government spending on social programs and the war in Vietnam; low interest rates established past the Federal Reserve Board, which encouraged more borrowing by businesses; rising energy costs; and, in 1971, the end of the Bretton Woods budgetary system linking the value of the U.S. dollar to the value of gold. The result was skyrocketing consumer prices that outpaced wage increases for workers. Nixon responded by applying artificial wage and price controls to the economy in 1971. They began to produce shortages until, when they were lifted after ninety days, prices skyrocketed over again.

President Gerald Ford, lacking whatever better solutions, used psychology to get control of aggrandizement, asking citizens to wear Whip Inflation Now (WIN) buttons. President Jimmy Carter reined in government spending by reducing its growth and began deregulating manufacture, simply kept cost controls on oil. Carter also appointed Paul Volcker, an anti-inflation hawk, every bit chair of the Federal Reserve Board in 1978, and his policy of driving up interest rates ended the bang-up inflation by 1983 (but the issue was a recession in 1979-1980 and over again in 1981-1982). Conspicuously, more than merely high oil prices was responsible for the inflation of the 1970s. As economist Milton Friedman wrote in his 1979 book
Gratis to Choose:
“There is one simple way to end the free energy crisis and the gasoline shortages tomorrow. Eliminate all the controls on the prices of crude oil and other petroleum products.”

Americans faced a second, more than severe shock at the pump after Iran cut oil exports entirely from Dec 1978 until the autumn of 1979, during the consolidation of power past the new Iranian Islamic regime under Ayatollah Khomeini. Other nations, like Saudi Arabia, picked up the slack, but the result was a second major panic that tripled the price of gasoline at the pump (to more than $i.00 per gallon, which, adjusted for inflation, was the highest gas price U.S. consumers had ever paid). The price per barrel more than doubled from $15 per barrel to $39 per barrel by mid-1979. Again, panic ensued as drivers lined upwardly for gas and shortages resulted.

Cars line up in and around a gas station to use a pump.

Long lines at gas stations became mutual again during the 1979 oil crisis in the The states.

The 1979 Iii Mile Island nuclear accident in Pennsylvania that resulted in a partial nuclear meltdown turned the public against nuclear power and triggered additional fears of skyrocketing energy costs. The toll of home heating oil doubled in the harsh winters of 1979 and 1980. Nearly importantly, the oil crisis fueled a new round of inflation because railroads and airlines were striking hard by the fuel crisis and raised fares in response. Jimmy Carter spoke to this topic in his 1979 “malaise speech,” calling the oil crisis “the moral equivalent of war,” yet he chose non to ease up on regulations on oil product in the United States to expand supply and lower prices to meet the crunch.

That regulatory policy took event after the election of Ronald Reagan. Reagan wanted to steer the land toward greater energy independence. In role because of the Reagan administration’southward success in persuading Saudi Arabia to keep production up despite a driblet in need (to limit the oil profits the Soviet Marriage was using to fund its military), the price of oil plummeted during the 1980s and 1990s, from $20 per butt to $five by the end of the 1980s.

The oil shocks of the 1970s had a profound impact on the American economy and politics. They signified the beginnings of an effort to examine renewable free energy sources, like solar and wind energy. Eventually, ethanol production from corn also was subsidized past the federal government in an attempt to produce alternatives to oil in the refining of gasoline. Auto producers began to build smaller, more fuel-efficient cars. (Withal, when oil prices dropped, American consumers turned dorsum to fuel-hungry trucks and sport utility vehicles). Domestic energy sources and producers received new encouragement from the Reagan administration, and by the mid-2000s, the evolution of fracking, the use of high-pressure sand and h2o to unlock oil stored in shale rock, led to the evolution of the Bakken Oil Field in North Dakota and the Permian Basin in Texas. With this development, by 2018, the U.s.a. was once again the largest oil producer in the globe.

Politically, the deregulation of oil contributed to the conservative revolution in American politics. Carter lost his reelection bid due to the country’s economical troubles and the Iran hostage crisis, while oil-friendly Republican administrations, including those of Reagan, George West. Bush, and Donald Trump, encouraged greater American product and exploration. Nonetheless the oil market remains volatile, and although the Middle Eastern nations comparatively produce less oil than in the 1970s, geopolitics and the demand for energy will likely brand oil a key office of globe politics for the foreseeable future.


Review Questions

1. Why did the Yom Kippur War produce the first oil embargo in 1973?

  1. President Nixon supported Israel.
  2. The Soviet Matrimony ordered OPEC to embargo oil.
  3. The cost of oil declined considering of the war.
  4. Saudi Arabia needed the hard currency.

two. The 1979 oil crisis was sparked past

  1. President Carter’s curtailing of domestic oil production
  2. OPEC’due south embargo of oil
  3. Iran’s cut of oil exports
  4. the war between Israel and the Arab States

three. A major concern the Yom Kippur War raised for the United States was

  1. an economic depression in the United states of america
  2. an ensuing war between the earth’south superpowers
  3. fear that the United states of america would no longer be the globe’south biggest oil producer
  4. the anything of the state of israel

4. For the The states, the almost significant impact of the 1973 oil embargo was

  1. the need to increase domestic oil product
  2. a loss of economic back up from important allies
  3. a 40 per centum increase in gas prices
  4. the terminate of its alliance with Israel

5. All the post-obit were major impacts of the oil shocks of the 1970s except

  1. America began to examine the use of renewable free energy sources
  2. the federal authorities subsidized culling forms of car fuel
  3. machine companies began to build smaller cars
  4. Richard Nixon was reelected in a landslide victory

six. The domestic event that made oil shocks more problematic in the 1970s was

  1. the Watergate scandal
  2. the Three Mile Isle incident
  3. the end of the Bretton Forest monetary organization
  4. the introduction of ethanol production

7. Which of the following is an authentic comparison of the 1973 and 1979 oil crises?

  1. Both crises led to a renewed involvement in examining renewable energy sources.
  2. The 1973 crunch resulted from cuts in domestic oil product, whereas the 1979 crunch was the upshot of the Yom Kippur War.
  3. The 1973 crisis was more astringent than the crisis of 1979.
  4. Both crises led to reduced regulations to expand domestic oil production.

Costless Response Questions

  1. Explain how the System of the Petroleum Exporting Countries (OPEC) was successful in its oil embargo in 1973.
  2. Analyze the touch on of price controls on the 1970s oil crunch in the U.s.a..

AP Do Questions

Cars line up in and around a gas station to use a pump.

Cars lining up for fuel at a Maryland service station in June 1979.

Refer to the image provided.

1. Events like those in the photo were most directly related to

  1. stagflation of the 1970s
  2. the oil embargos of the 1970s
  3. recessions of the 1970s
  4. the Whip Aggrandizement Now entrada

two. Which effect contributed most to events such every bit those depicted in the photograph?

  1. The Yom Kippur War
  2. The Watergate scandal
  3. The Islamic Revolution in Iran
  4. Increased regime spending on social programs

3. A meaning federal reaction to the economic crisis that accompanied the outcome in the photograph was

  1. President Nixon’s trip to the Centre East to negotiate lower oil prices
  2. temporary wage and price controls
  3. the use of the Whip Inflation Now campaign to improve the economy
  4. the appointment of Paul Volcker as Federal Reserve chair

Primary Sources

Richard Nixon, Accost to the Nation near National Energy Policy, November 1973. https://www.nixonlibrary.gov/sites/default/files/2018-08/energycrisisspeech_transcript.pdf

Jimmy Carter, “A Crisis of Confidence” speech, July 1979. https://www.americanrhetoric.com/speeches/jimmycartercrisisofconfidence.htm

Ronald Reagan, Radio Accost to the Nation on Oil Prices, April 1986. https://www.reaganlibrary.gov/research/speeches/41986a

Suggested Resources

Jacobs, Meg.
Panic at the Pump: The Free energy Crisis and the Transformation of American Politics in the 1970s. New York: Hill and Wang, 2017.

Samuelson, Robert J.
The Nifty Inflation and its Backwash: The Past and Future of American Affluence. New York: Random House, 2011.

Yergin, Daniel.
The Prize: The Epic Quest for Oil, Coin and Turn a profit. New York: Simon and Schuster, 1991.

Why Did Opec Increase Oil Prices in 1973 Apex

Source: https://www.billofrightsinstitute.org/essays/the-1973-oil-crisis-and-its-economic-consequences