The oil crisis of 1973 (also known as the “oil embargo”) began on October 17, 1973. On this day, all the Arab countries of the OPEC, as well as Egypt and Syria, said that they would not supply oil to England, Canada, Netherlands, USA, and Japan since they supported Israel during the Yom Kippur War. This primarily concerned the US and its allies in Western Europe. Over the next year, the price of oil rose from three to twelve dollars per barrel. Which are the main lessons we all should remember?
The 1973 oil crisis was the first energy crisis and is still considered the largest. The OPEC reduced the volume of oil production not only to affect world prices in its favor: The main task of this action was to create political pressure on the world community with a view to reducing support for Israel by Western countries.
The result of the economic pressure of OPEC was the declaration of the Council of Ministers of the Common Market countries which supported the position of the Arabs. In addition, almost all African states cut off diplomatic relations with Israel. The political situation created an increased Israel’s dependence on the United States and revealed the true extent of dependence of developed countries on oil prices.
In a special message to the Energy Congress on November 7, 1973, US President Richard Nixon called on Americans to save oil. The Government asked people to decrease the use of cars, and, in case they really had to use them, the recommendation was to drive at low speed in order to save fuel. Airlines were ordered to reduce the number of flights. Government agencies were ordered to save electricity and reduce the car fleet. The Environmental Protection Agency temporarily lifted restrictions on the use of coal-polluting coal. Limits were removed for the import of oil and crude oils.
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Several gas stations were closed in the 1970s, and their facilities were subsequently used for other purposes. Some former gas stations, in Washington, for example, were turned into churches. So, under the pretext of growing costs, oil companies began to significantly raise prices for gasoline and diesel fuel, as well as for aviation kerosene. The producers of natural gas demanded permission from the Federal Energy Commission to raise prices beyond seventy percent.
A specially created federal commission in mid-July submitted to the Senate its sensational report that twenty US corporations that monopolized the production and purification of oil, and the distribution of petroleum products, were directly accused of artificially creating gas supply disruptions for purposes of profit. The state prosecutor of Florida demanded that an antimonopoly law had to be applied against the oil monopolies. The federal grand jury in Los Angeles, in turn, accused the oil companies of all sorts of machinations.
In the long term, the crisis had a strong impact on the US auto industry. Decades before, the American cars were big, heavy, and powerful. Until 1971, the volume of the standard eight-cylinder Chevrolet Caprice engine was four hundred cubic inches, and a Chevrolet Impala could not run more than 13-15 miles with a gallon of gasoline. After the crisis, they were replaced by Japanese models with four-cylinder engines that consumed much less gasoline. Unable to compete, Detroit’s auto industry was forced to build more light vehicles such as the Ford Pinto and the Chevrolet Vega. By 1985, an average American car consumed a gallon of gasoline for every 17.4 miles of mileage. The demand for luxury cars, such as the Oldsmobile 98, recovered in the mid-1970s, but their market was not massive. New models of Ford Thunderbird have greatly decreased in size and power, and the Ford Galaxy in 1974 was removed from the assembly lines.
VIDEO: 1973 Oil Crisis
After the crisis, in 1975, the US created a national oil reserve – the US Strategic Oil Reserve. Similar oil reserves (at least 3 months of imports) were created in many OECD countries that joined the international body International Energy Agency. The presence of such oil reserves allowed to reduce the negative effect of several subsequent oil crises.
One of the main lessons of the oil crisis of 1973 is that if the welfare state spends more than what it gets, the collapse of the state itself, in the long run, is imminent. It is difficult to curb public spending so that the public deficit continues to increase. However, an energy crisis reduces state revenues by increasing unemployment, reducing the labor force, investing, and increasing the shadow economy. Thus, a crisis of legitimacy occurs if the State cannot guarantee the social benefits it has offered for decades. The situation becomes a vicious circle, for this means that large sectors, such as the agrarian, construction, or the food industry may agree on the need to reduce the deficit public and that the economy is sanctioned, while in certain situations they try to solve their problems by requiring the intervention of the State, to grant them some type of assistance.
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