The Oil Crisis, 1973-1980

In 1973 the governments of the major oil producing countries, members of the OPEC, took control of oil production and, most importantly, of fixing the prices for the oil exported from their countries. Hitherto, oil had been produced and marketed by western-based oil companies, which, by reducing the oil prices again and again, have also reduced the shares these governments had been paid. An additional incentive was provided by the Arab-Israeli War of 1973; the mostly Arab and Muslim OPEC members wanted to press the west to rethink its Near East policy.
In 1973, in a number of steps oil prices were increased drastically. The major OPEC nations suddenly experienced a massive inflow of money, which was used in various ways. In part it was invested in building up a domestic industry (f.instance in Iraq), which, due to ineffectivity and a lacking willingness to work on the side of the people, failed in many cases. In part it was invested in ambitious armament projects (Libya, Iraq), in part in massive agricultural projects intended to turn desert into farmland (Libya). Most inhabitants of Kuwait, Saudi Arabia, the UAE expected high-paying desk jobs, while manual labour should be taken on by immigrants (Indians, Pakistani etc.; many technological jobs were filled by Palestinians). A part of the income was invested in western industries, f.ex. Iran purchased 5 % of Krupp (steel industry, FRG).

The USA had significant oil sources of its own; new oilfields were opened up in Alaska and off the coast of Louisiana. The US kept the prices for gasoline at a low level (i.e. low taxation imposed on it).
In Europe, the governments undertook steps to reduce both oil consumption in general and the dependency of OPEC oil imports in particular. These policies had to be medium to long term policies. So more emphasis was placed on nuclear power stations - at a time when environmentalist organizations stepped up their campaigns against this technology. Oil fields in the North Sea were developed, to the benefit of the Scottish and Norwegian economies.
On several sundays in 1973, German highways were empty, as the use of the car was banned (except for emergency vehicles). The government supported energy-saving investments by accepting them as tax deductible - investments such as insulating houses, installing double-pane windows, installing catalysts in cars etc. The European governments continued their policy of taxing the sale of gasoline (75 % of the price is taxation); actually they profitted from the oil crisis. The mesures were rather successful; oil consumption decreased considerably, per-capita oil consumption in western Europe is considerably lower than in the US.

Yet the oil crisis, and the outflow of money to the OPEC countries, marked the end of the quick economic growth of the 1950es and 1960es. The economy continued to grow, at a smaller rate. Full employment was a matter of the past; now unemployment began to grow, inflation picked up.

The socialist countries of Eastern Central Europe were affected much worse; they turned to a policy of selling whatever possible on western markets (often at low prices) in order to obtain cash in western currency; the supplies in their domestic markets suffered. They did not have the funds to modernize industrial facilities, to repair the infrastructure; their economies deteriorated at an accelerating pace.

In 1980 Iraq's dictator SADDAM HUSSEIN attacked Iran (which just had seen the Islamic Revolution), launching the FIRST GULF WAR. A war between two OPEC members caused the unity of the organization to split up; moderate OPEC members lead by Saudi Arabia agreed to increase production (in order to cover for the oil not sold to the world markets by the combattants Iraq and Iran, and more oil in order to bring down the price). The Oil Crisis was over.

History of the Oil Industry in the Soviet Union, timeline posted by TNK
The History of the Oil Industry (with emphasis on California and Kern County), posted by SJGS
A Brief History of the Oil Industry, from Rigjobs, focus on UK
Oil Prices History and Analysis, from WTRG, lots of graphs
History of Oil in Kuwait, from KPC
Deardorff's Glossary of International Economics : Opec Members, 2002
REFERENCE The Prize - The Epic Quest for Oil, Money & Power (1992), 4 tapes - 8 episodes, documentary, by Daniel Yergin

This page is part of World History at KMLA
First posted on July 19th 2001, last revised on November 15th 2004

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