On October 16th, 1973, as part of the political strategy that included the Yom Kippur War, 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. Also imposed was a boycott of Israel, and price increases. Since oil demand falls little with price rises, prices had to rise dramatically to reduce demand to the new, lower, level of supply. Anticipating this, the market price for oil immediately rose substantially. A world financial system already under pressure from the breakdown of the Bretton Woods agreement, would be set off on a path of a series of recessions and high inflation that would persist until the early 1980's, and elevated oil prices that would persist until 1986.
The crisis was further exacerbated by government price controls in the United States, which limited the price of "old oil" (that had already been discovered) while allowing newly discovered oil to be sold at a higher price, resulting in a withdrawal of old oil from the market and artificial scarcity. The rule had been intended to promote oil exploration. This scarcity was dealt with by rationing of gasoline (which occurred in many countries), with motorists facing long lines at gas stations. In the U.S., drivers of vehicles with license plates having an odd number as the last digit 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 years — the latter never came into play as the restrictions had been abolished by 1976.
Meanwhile, the shock produced chaos in the West. In the United States, the retail price of a gallon of gasoline rose from a national average of 38.5 cents in May 1973 to 55.1 cents in June 1974. Meanwhile, New York Stock Exchange shares lost $97 billion in value in six weeks.With the onset of the embargo, U.S. imports of oil from the Arab countries dropped from 1.2 million barrels (190,000 m³) a day to a mere 19,000 barrels (3,000 m³). Daily consumption dropped by 6.1 percent from September to February, and by the summer of 1974, by 7 percent as the United States suffered its first fuel shortage since the Second World War.
The U.S. government response to the embargo was quick, but of limited effectiveness. A National Maximum Speed Limit of 55 miles per hour (90 kilometres per hour) was imposed to help reduce consumption. This, incidentally, was claimed by some to have caused traffic fatalities to drop by 23 percent between 1973 and 1974. As a result this law was not completely reversed until 1995. President Nixon named William Simon as an official "energy czar," and in 1977 a cabinet-level Department of Energy was created, which led to the creation of the United States' Strategic Petroleum Reserve. The National Energy Act of 1978 was also largely a response to this crisis.Year-round Daylight Saving Time was implemented: at 2:00 AM local time on January 6, 1974; clocks were advanced one hour across the nation; the move spawned significant criticism because it forced many children to commute to school before sunrise. As a result, the clocks were turned back on the last Sunday in October as originally scheduled, and in 1975 clocks were set forward one hour at 2:00 AM on February 23, the later date being adopted to address the aforementioned issue. 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 (this date being changed to the first Sunday in April in 1987).The crisis also prompted a call for individuals and businesses to conserve energy — most notably a sophisticated 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 that had the slogan "Last Out, Lights Out: Don't Be Fuelish" emblazoned thereon.The U.S. "Big Three" automakers first order of business after Corporate Average Fuel Economy (CAFE) were enacted was to downsize existing automobile categories; by the end of the 1970s, 121 inch wheelbase vehicles were a thing of the past. Before the mass production of automatic overdrive transmissions and electronic fuel injection, the traditional FR (front engine/rear wheel drive]] layout was being phased out for the more efficient and/or integrated FF (front engine/front wheel drive) starting with compact cars. Using the Volkswagen Rabbit as the archetype, much of Detroit went FF after 1980 in response to CAFE's 27.5 MPG mandate. Vehicles such as the Ford Fairmont were short-lived in the early 1980s.
Perception of the oil industry in 1973
Long-term effects of the embargo are still being felt. Public suspicion of the oil companies, who were thought to be profiteering or even working in collusion with OPEC, continues unabated (seven of the fifteen top Fortune 500 companies in 1974 were oil companies, with total assets of over $100 billion).
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 oil still proves dangerous for all concerned to this day.
Side note:
In thirty-year-old British government documents released in January 2004, it was revealed that the United States considered invading Saudi Arabia and Kuwait during the crisis and seizing the oil fields in those countries. According to the BBC, other possibilities, such as the replacement of Arab rulers by "more amenable" leaders, or a show of force by "gunboat diplomacy," were rejected as unlikely.
Anthony Landaeta
A look back to the Oil Crisis of 1973
The crisis was further exacerbated by government price controls in the United States, which limited the price of "old oil" (that had already been discovered) while allowing newly discovered oil to be sold at a higher price, resulting in a withdrawal of old oil from the market and artificial scarcity. The rule had been intended to promote oil exploration. This scarcity was dealt with by rationing of gasoline (which occurred in many countries), with motorists facing long lines at gas stations. In the U.S., drivers of vehicles with license plates having an odd number as the last digit 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 years — the latter never came into play as the restrictions had been abolished by 1976.
Meanwhile, the shock produced chaos in the West. In the United States, the retail price of a gallon of gasoline rose from a national average of 38.5 cents in May 1973 to 55.1 cents in June 1974. Meanwhile, New York Stock Exchange shares lost $97 billion in value in six weeks.With the onset of the embargo, U.S. imports of oil from the Arab countries dropped from 1.2 million barrels (190,000 m³) a day to a mere 19,000 barrels (3,000 m³). Daily consumption dropped by 6.1 percent from September to February, and by the summer of 1974, by 7 percent as the United States suffered its first fuel shortage since the Second World War.
The U.S. government response to the embargo was quick, but of limited effectiveness. A National Maximum Speed Limit of 55 miles per hour (90 kilometres per hour) was imposed to help reduce consumption. This, incidentally, was claimed by some to have caused traffic fatalities to drop by 23 percent between 1973 and 1974. As a result this law was not completely reversed until 1995. President Nixon named William Simon as an official "energy czar," and in 1977 a cabinet-level Department of Energy was created, which led to the creation of the United States' Strategic Petroleum Reserve. The National Energy Act of 1978 was also largely a response to this crisis.Year-round Daylight Saving Time was implemented: at 2:00 AM local time on January 6, 1974; clocks were advanced one hour across the nation; the move spawned significant criticism because it forced many children to commute to school before sunrise. As a result, the clocks were turned back on the last Sunday in October as originally scheduled, and in 1975 clocks were set forward one hour at 2:00 AM on February 23, the later date being adopted to address the aforementioned issue. 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 (this date being changed to the first Sunday in April in 1987).The crisis also prompted a call for individuals and businesses to conserve energy — most notably a sophisticated 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 that had the slogan "Last Out, Lights Out: Don't Be Fuelish" emblazoned thereon.The U.S. "Big Three" automakers first order of business after Corporate Average Fuel Economy (CAFE) were enacted was to downsize existing automobile categories; by the end of the 1970s, 121 inch wheelbase vehicles were a thing of the past. Before the mass production of automatic overdrive transmissions and electronic fuel injection, the traditional FR (front engine/rear wheel drive]] layout was being phased out for the more efficient and/or integrated FF (front engine/front wheel drive) starting with compact cars. Using the Volkswagen Rabbit as the archetype, much of Detroit went FF after 1980 in response to CAFE's 27.5 MPG mandate. Vehicles such as the Ford Fairmont were short-lived in the early 1980s.
Perception of the oil industry in 1973
Long-term effects of the embargo are still being felt. Public suspicion of the oil companies, who were thought to be profiteering or even working in collusion with OPEC, continues unabated (seven of the fifteen top Fortune 500 companies in 1974 were oil companies, with total assets of over $100 billion).
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 oil still proves dangerous for all concerned to this day.
Side note:
In thirty-year-old British government documents released in January 2004, it was revealed that the United States considered invading Saudi Arabia and Kuwait during the crisis and seizing the oil fields in those countries. According to the BBC, other possibilities, such as the replacement of Arab rulers by "more amenable" leaders, or a show of force by "gunboat diplomacy," were rejected as unlikely.
Anthony Landaeta
A look back to the Oil Crisis of 1973
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