Energy crisis of 1973

The 1973 energy crisis, also known as the Oil Shock of 1973–74, was a period of skyrocketing energy prices and fuel shortages resulting from an embargo by Arab oil-producing nations in response to U.S. support for Israel during the Yom Kippur War. During this period, the price of a barrel of oil nearly quadrupled in less than a year.

The embargo was lifted in early 1974, but the economic shock it caused is regarded as a precursor to the rapid inflationary pressures and stagflation experienced later in the 1970s. The oil embargo of 1973 was just one of many complicating factors that led to a decade of high inflation and stagflation in the United States during the ’70s.

A second energy crisis arose in 1979 following the Iranian Revolution and the overthrow of the shah of Iran.

On Oct. 19, 1973, following then-President Richard Nixon’s decision to provide Israel with $2.2 billion in emergency aid in support of the Yom Kippur War, the Organization of the Petroleum Exporting Countries (OPEC) approved an oil embargo on the U.S. This effectively shut off the exports of Arab crude oil to the US, followed by a series of steep production cuts in output.

Before the embargo, a barrel of oil traded for around $2.90, quadrupling to $11.65 per barrel by January 1974. This led to an increase in the price of regular gasoline in the U.S. from an average of 39 cents per gallon before the crisis to 53 cents in 1974, an increase of around 36 per cent in less than a year.

In addition to rising prices, there were shortages, leading to rationing at gas stations and long queues of cars waiting to fill up. Some consumers tried to hoard gasoline and related products, making the situation even worse.

In terms of replacing Arab oil, the U.S. had little in the way of excess capacity to boost production. Even with rising oil prices, the time and capital needed to discover new deposits and bring new wells online can take years.

Ultimately, OPEC lifted its embargo in March 1974; however, higher oil prices persisted, leading to higher inflation overall. As with most economic events, the 1973 energy crisis and the inflation that followed were the result of several factors, not just U.S. support for Israel.

There had been a decades-long struggle between the governments of oil-producing nations and the large US oil conglomerates for control over the global oil market.

Until the 1970s, OPEC (which was only formed in 1960) had kept a relatively low profile, mainly negotiating with international oil companies for better terms for its member countries. OPEC saw the Yom Kippur War as a way to make its geopolitical power known and to strike a blow at the US oil giants.

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