An Arab oil embargo nearly tripled the world price
In October 1973, Arab OPEC producers (OAPEC) embargoed nations backing Israel in the Yom Kippur War—initially Canada, Japan, the Netherlands, the UK, and the United States under Saudi King Faisal’s lead. By March 1974 the embargo lifted, but oil had jumped from about three dollars a barrel to nearly twelve.
The embargo followed the surprise attack by Egypt and Syria that opened the Yom Kippur War, an unsuccessful bid to regain land lost in 1967. The target list later grew to include Portugal, Rhodesia and South Africa, and exports to the United States were cut after Richard Nixon asked Congress for $2.2 billion in aid for Israel. Arab producers had tried the oil weapon twice before: in 1956, when Syrians sabotaged pipelines feeding Western Europe during the Suez Crisis, and in 1967, when a short embargo is generally judged a failure.
America had made itself vulnerable. Domestic production peaked around 1970, imports climbed 52 percent between 1969 and 1972, and by 1972 some 83 percent of them came from the Middle East; crude imports nearly doubled to 6.2 million barrels a day by 1973. Cheap oil had already gutted coal, which supplied 51 percent of US energy in 1951 but only 19 percent of industry by 1973. A barrel sold for $1.80 throughout the 1960s, so in real terms Americans paid less in 1969 than in 1959, fuelling the long postwar boom. Nixon kept Eisenhower's import quotas despite advice from George Shultz's committee to replace them with tariffs, added a price ceiling in 1971, and finally scrapped the quotas in 1973.
Money mattered as much as politics. OPEC, founded in Baghdad in September 1960 by Venezuela, Iraq, Saudi Arabia, Iran and Kuwait, had long been seen as toothless. When Nixon closed the gold window in August 1971, the dollar-priced income of producers shrank, and OPEC responded by pegging oil to gold. The price jumps of 1973 and 1974 largely restored their earnings to earlier levels measured against gold.
The episode became known as the first oil shock; a second followed the Iranian Revolution in 1979. The Suez Canal, shut since 1967, was cleared in 1974 and reopened in 1975.
Source: 1973 oil crisis
