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By Cindy Hwang, Jennifer Kim, Lisa Kim, and Yunji Kim

Overall explanation of the 1973 Oil Crisis



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**OPEC**(Organization of the Petroleum Exporting Countries)
OPEC is an intergovernmental organization made up of 13 oil producing nations. It was formed in September 14th, 1960 in order to ensure the stabilization of oil prices in international oil markets, regarding the interest of oil-producing countries at all times

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OPEC countries
OPEC countries










Increase in price
US pulled out of
Bretton Woods Accord,,an agreement that all countries fixed thier exchange rate based on US dollar and in return US fixed the price of gold at $35 per ounce, thereby leaving the US dollar without a 'standard' or 'measurement'. As other industrialized countries followed the trend, many expected fluctuation in currency and increased the production of their money, including US. This resulted in the depreciation of US dollar, the currency in which oil was priced with. With the price of oil barely changing and the value of dollar depriciating, OPEC was earning less real income. Thus, when the OPEC announced that they would price the oil according to the price of gold, instead of US dollar, the price of oil substantially rose and exacerbated the oil crisis as well.

Political strategy
Yom Kippur war was a conflict between two OPEC members (Egypt & Syria) and Israel. Surrounding Arab members of OPEC endorsed Egypt & Syria, whereas US supported Israel. During October 1973, OPEC announced the oil embargo against US decision to continue the aid for Israel. The embargo applied to any nations that supported Israel, causing Europe & Japan to disassociate themselves with the US middle east policy. Also as domestic oil reserve dwindled with unchanging demand, the price of oil rocket-soared. The political strategy worked and US negotiated with a weaker international position.


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Arab Embargo was an act of restricting trade and raising the price of oil with oil consuming nations by countries that are part of OPEC

Introduction
Before there was an OPEC, the great oil companies of the West ruled the oil industry. Oil is one of the crucial factors that runs the industrialized nations. Yet back before the days of OPEC, the great oil companies often retained 65% or more of the revenue from a product produced. In 1960, many of the oil producing nations, formed a cartel to protect their interests. OPEC set the stage for a new process in which the producer nations would eventually take over the functions of the companies, at least in production, and retain much more of the revenues. However, OPEC really had little impact from its founding in 1960 until 1973.
US vulnerable against Arab Oil Embargo
US vulnerable against Arab Oil Embargo

How it happened
  • January 1973—The 1973–1974 stock market crash begins.
  • September 15- The OPEC declares a negotiating front to pressure for price increases and an end to support of Israel, based on the 1971 Tehran agreement.
  • October 6- the fourth Arab-Israeli War starts.
  • October 8 ~ October 10- OPEC negotiations with oil companies to revise the 1971 Tehran price agreement fail.
  • October 12- The United States initiates Operation Nickel Grass, an overt strategic airlift operation to provide weapons and supplies to Israel during the Yom Kippur War.
  • October 16- Saudi Arabia, Iran, Iraq, Abu Dhabi, Kuwait, and Qatar unilaterally raise posted prices by 17% to $3.65 per barrel and announce production cuts. OPEC cut production of oil and placed an embargo on shipments of crude oil to the West, with the United States and the Netherlands specifically targeted.
  • October 17- OPEC oil ministers agree to use oil as a weapon to punish the West for its support of Israel in the Arab-Israeli war.
  • October 19- US President Richard Nixon requests Congress to appropriate $2.2billion in emergency aid to Israel, including $1.5 billion in out-right grants.
  • November 5- Arab producers announce a 25% output cut and a further 5% cut is threatened.
  • November 23- The Arab embargo is extended to Portugal, Rhodesia, and South Africa.
  • November 27- U.S. President Richard Nixon signs the Emergency Petroleum Allocation Act authorizing price, production, allocation and marketing controls.
  • December 9- Arab oil ministers agree to another 5% cut for non-friendly countries.
  • December 25- Arab oil ministers cancel the 5% output cut for January.
  • January 7 ~ January 9, 1974- OPEC decides to maintain the prices until April 1, 1974.
  • March 17- Arab oil ministers, with the exception of Libya, announce the end of the embargo against the United States.
  • December 1974—The 1973–1974 stock market crash ends.

Youtube videos to further your understanding

NBC Nightly News coverage of OPEC's decision to cut exports of oil to the United States along with other nations.
Reported by John Chancellor of the evening of October, 17 1973.


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Even though Arab Oil Embargo ended in March 1974, OPEC countries sold their oil at a high price presenting many problems for countries that import oil.
Many gas stations ran out of gas
Many gas stations ran out of gas

Short term

On Oil Consuming Countries

  • increased oil prices in western world with the strongest effect on United States (prices jumped from 25 cents to over dollar in couple of months)
  • limited accessibility to oil and many gas stations ran out of oil
  • oil consumption in United States dropped up to 20 percent

On OPEC countries
  • realized their political power on the world by controling oil exports
  • found that they could increase oil prices and make much more profit than before

Long term

Reccesion throughout the whole world

US
Oil crisis ended the concept of "Cheap Oil"
Oil crisis ended the concept of "Cheap Oil"

  • inflation (above 10 percent)
  • high unemployment
  • inventions of energy efficient products (cars, appliances)
  • oil heat replaced by electric heat
  • infrastructure adopted to use affordable forms of energy went contructing

Canada
  • inflation (reached 10 percent)
  • unemployment (reached 7 percent)
  • increased demand for oil from US

Japan
  • increased car sales due to its fuel efficiency
  • led to Japan to shift large amount of investment to electronics (products that does not use oil)

World Wide
  • oil that was not imported from OPEC countries also rose since oil companies were looking for excuse to gain more profit ( oil companies made huge amount of money due to Arab Oil Embargo)
  • Stagflation
  • disappearance of "Cheap Energy"
  • Great impact on the car industry which depends heavily on oil accessibility (production of cars that use less oil)

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Preservation of oil

US

  • dropped speed limit to 55mph on highways
  • use of daylight savings time
  • encourage use of alternative/renewable energy source (wind and solar) for public and industries
  • creation of Energy Department because they realized that being too dependent on other countries' oil was dangerous for their ecomony
  • gas stations sold limited amoun of gas to each customer
  • US citizens changed lifestyles by being more fuel-efficient (cars and homes)
  • creation of energy policies ( Energy Policy and Conservation Act of 1976, Energy Conservation and Production Act of 1976, Energy Reorgnization Act of 1974, and National Energy Act of 1978)
  • banned sale of gasoline on sundays

US limited the max amount of oil sold to each customer to 10 gallons
US limited the max amount of oil sold to each customer to 10 gallons


Canada

  • froze domestic price of oil below world price
  • started to tax exports of oil
  • relied on oil from Western Canada
  • Government established Petro-Canada in December of 1973 to urge oil and gas exploration, to help develop the Alberta tar sands, and get trustworthy imports and get valuable information about the industry which the whole country depends on for daily life

World Wide

  • Rearch in alternative energy source increased signigicantly (including wind, solar, tide power)
  • Oil exploration
  • Energy conservation
  • Washington Energy Conference in 1974 (establishment of International Energy Agency)
Wind power; alternative energy source
Wind power; alternative energy source


Conclusion

Even though 1973 Oil Crisis showed how dependent western world was on foreign oil and how vulnerable they were to limited oil supply, this event made many realize how inefficient they were with energy. From a positive aspect, oil crisis was a good awakening since it made the world create and be more energy efficient. Without the oil crisis, the development in fuel-efficiency cars and products as well as advances in alternative and renewable energy sources might not have reached the stage it is in now.

Bibliography