1973 oil crisis
The 1973 oil crisis began on an afternoon in October when King Faisal of Saudi Arabia sat in his office, received word that the United States was sending $2.2 billion worth of weapons to Israel, and called his oil minister Ahmed Zaki Yamani. The king said: "Write this down." Within hours, a total embargo on oil exports to the United States was announced. It was a decision made in a matter of minutes that would end what many economists call the "long summer" of Western prosperity that had flourished since 1945. What drove the most powerful oil nation on earth to take that step? Why had Washington so badly misread the warnings? And why did the reverberations reach from the streets of Saigon to the ski slopes of St. Moritz, from Lagos to Lahore?
Throughout the 1960s, a barrel of oil sold for $1.80. Adjusted for inflation, Americans were actually paying less for oil in 1969 than they had paid in 1959. That cheapness made possible what the French called the Trente Glorieuses, or the Glorious Thirty years: a long era of mass prosperity, the swinging sixties, and a generation raised on abundance.
By 1951, coal supplied 51% of American energy. By 1973 coal's share had fallen to 19%, displaced by cheap oil. American domestic production peaked around 1970, and by 1973 the United States accounted for only 16% of global oil output. Between 1969 and 1972, US oil imports rose 52%. By 1972, some 83% of American oil imports were coming from the Middle East.
The Eisenhower administration had imposed import quotas on foreign oil in 1959, keeping them in place until 1973. Critics called it the "drain America first" policy, arguing it accelerated the depletion of domestic reserves. When Nixon ended the quota system in 1973, US crude oil imports had nearly doubled compared to three years earlier, reaching 6.2 million barrels per day.
Oil priced at $1.80 a barrel is a powerful sedative for energy policy. The extreme cheapness of oil meant that when the price finally moved, the shock would be all the more severe for having been so long delayed.
In 1970, President Nasser of Egypt died. His successor, Anwar Sadat, described his own approach to diplomacy through his favourite game, backgammon: skill and persistence rewarded, but best won by sudden gambles. Henry Kissinger, who was absorbed in the Paris peace talks to end the Vietnam War, later admitted he and others in Washington missed the significance of what Sadat was building.
Sadat formed a close alliance with King Faisal of Saudi Arabia. Where Nasser had been a secularist, Sadat was a pious Muslim. He and Faisal shared a strong personal rapport. The union between Egypt, the most populous Arab state, and Saudi Arabia, the wealthiest, would prove consequential.
In July 1972, Sadat expelled all 16,000 Soviet military personnel from Egypt. Kissinger was taken completely by surprise. He asked: "Why has he done me this favor? Why didn't he demand all sorts of concessions first?" Sadat expected pressure on Israel in return. When no pressure came, he pivoted back toward Moscow and began purchasing a massive quantity of Soviet arms for a war planned for 1973. Saudi Arabia provided the money.
In April 1973, Saudi Oil Minister Ahmed Zaki Yamani visited Washington and told Kissinger that King Faisal was growing deeply unhappy. Faisal wanted the United States to press Israel to return the lands captured in the 1967 Six-Day War. Kissinger, by Yamani's own account, did not take the warning seriously and asked only that Yamani stop speaking of the threat publicly. On the 19th of April 1973, Yamani went to the Washington Post and warned the embargo was a real possibility. Washington assumed Faisal was bluffing.
Egypt and Syria attacked Israel on the 6th of October 1973, the Jewish holy day of Yom Kippur. Faisal told two Egyptian envoys on the 8th of October: "You have made us all proud. In the past we could not lift our heads up. Now we can." He pledged $200 million to Egypt's war effort and said he was prepared to use the "oil weapon" if needed.
On the 16th of October 1973, OPEC oil ministers gathered at the Sheraton Hotel in Kuwait City. The posted price of oil was raised from $3.01 per barrel to $5.12 per barrel. The statement issued after midnight was handwritten. Several paragraphs were crossed out; others were written in by different hands, reflecting how tense the debate had been.
The Iraqi oil minister Sa'dun Hammadi demanded total nationalization of all American oil company assets in the Middle East, the withdrawal of all Arab funds from the United States, and a complete break of diplomatic relations. The Libyan oil minister called for nationalization of all Western oil company assets. Saudi Oil Minister Yamani, backed by Algeria, fought both positions. His argument was that a price increase, not a full embargo, was the best lever on Washington. He won over the majority of delegations. Hammadi left angry.
The following day, the 17th of October, Arab producers cut production by 5% and threatened an embargo against nations that supported Israel. Over the next few days, as arms to Israel flowed and Nixon's request for $2.2 billion reached Congress, the threat became reality. Faisal received the news in his office, made the call to Yamani, and said: "Write this down."
Because every Arab state except Iraq and Libya formally joined the embargo, oil exports from the Middle East to the West fell by 60-70% by November 1973. Japan imported 90% of its oil from the Middle East. The nations of Western Europe imported some 75% of their oil from the same region. Consumers bid frantically for dwindling supplies. When the Iranian state oil company held an auction on the 16th of December 1973, bids reached roughly $17 per barrel. By late December, OPEC announced the price would rise from $5 to $11.65 per barrel.
In the United States, the average retail price of a gallon of regular gasoline rose 43% between May 1973 and June 1974, from 38.5 cents to 55.1 cents. Oregon banned Christmas and commercial lighting altogether. Nixon asked gasoline retailers to voluntarily halt sales on Saturday nights and Sundays; 90% complied. Long lines of motorists formed at stations still open. State governments asked citizens not to put up Christmas lights.
In the UK, Prime Minister Edward Heath warned the British public to expect economic austerity. The oil shock strengthened the coal miners union, which demanded higher wages. Heath offered a 7% increase; the miners rejected it. A series of coal and rail strikes through the winter of 1973-74 became a major factor in the defeat of Heath's Conservative government in the February 1974 general elections. The new Labour government of Harold Wilson settled the dispute with a 35% pay increase.
Japan, facing its most serious crisis since 1945, ordered a 20% cut in oil use and electric power to major industries in December 1973. The government made $3.3 billion in loans to Arab states and called on Israel to pull back. The crisis pushed Japan to diversify suppliers, invest in nuclear power, and impose conservation measures. In the long run it accelerated a shift away from oil-intensive industries toward electronics.
In 1975, the Federal Energy Administration reported to Congress that the 1973-1974 embargo had cost roughly 500,000 Americans their jobs and produced a GNP loss of between $10 billion and $20 billion.
On the 7th of November 1973, Kissinger flew to Riyadh to ask Faisal personally to end the embargo. The day before, at a summit in Cairo, he asked Sadat what Faisal was like and was told: "Well, Dr. Henry, he will probably go on with you about Communism and the Jews." Faisal's two great hatreds were communism and Zionism. He believed Soviet and Israeli interests were plotting together against Islam.
Kissinger found Faisal as stubborn as any negotiating partner he had faced. The king accused the United States of bias, ranged through a long denunciation of Jewish communists, and refused to lift the embargo. Instead he told Kissinger: "The United States used to stand up to aggression. You did that in World War Two and in 1956 during the Suez War. If the United States had done the same after 1967, we would not have witnessed this deterioration."
Behind closed doors, Secretary of Defense James Schlesinger suggested invading Saudi Arabia and seizing the oil fields. Kissinger, in a private State Department meeting, asked whether the United States could "overthrow one of the sheikhs just to show that we can do it." A plan was drawn up targeting Abu Dhabi, Kuwait, and Saudi Arabia. At a press conference on the 21st of November 1973, Kissinger publicly threatened "countermeasures" if the embargo continued. Saudi Arabia responded with threats to cut production further and burn its own oil fields if invaded. After the CIA confirmed the threat was credible, Kissinger abandoned the military option.
On the 18th of March 1974, Faisal ended the embargo. Sadat had told him Washington was being more evenhanded. Kissinger had agreed to sell Saudi Arabia weapons previously withheld on grounds they might be used against Israel. And Faisal had a self-interested reason to act: Saudi Arabia held billions of dollars in Western banks, and the inflation triggered by the embargo was eroding the value of his own nation's fortune.
Robert Lacey wrote that King Faisal's embargo of the 20th of October 1973 "did not achieve a single one of its stated objectives." Israeli forces did not withdraw to the 1949 Armistice line. Roy Licklieder, writing in his 1988 book Political Power and the Arab Oil Weapon, concluded that target nations did not change their policies on the Arab-Israeli conflict, and that any long-term changes resulted from the OPEC price increase rather than the OAPEC embargo. Daniel Yergin offered a different view, arguing the embargo "remade the international economy."
For the oil-exporting nations, the transformation was immediate and intoxicating. Saudi Arabia nationalized Aramco in 1980 under Yamani's leadership. The Shah of Iran in December 1973 announced his "Great Civilization" project, promising to make Iran a First World nation by the 1990s. President Carlos Andrés Pérez of Venezuela launched his own comparable project. President Yakubu Gowon of Nigeria told his people that their main challenge henceforward would be "managing abundance."
The Financial Times ran a headline in late 1973 reading "The Future will be subject to Delay." Kurt Waldheim, the secretary-general of the United Nations, complained in an August 1974 address to the General Assembly about "the note of helplessness and fatalism creeping into world affairs." The sudden end of the post-war boom contributed to the wider pessimism that shaped Western culture through the 1970s.
In Saudi Arabia itself, the oil wealth horrified Faisal. A devout Wahhabi Muslim, he watched his subjects embrace consumerism and turn away from religion. In the last two years of his life, he fell into depression. His son Crown Prince Mohammad told a journalist in 1981: "The profligacy, the greed, he felt he could not stem it. He became so bound up in his work, there was almost nothing private of him left." On the 20th of November 1979, gunmen seized the Grand Mosque in Mecca, their leader reading out a list of grievances against the corrupt and degenerate House of Saud. The oil wealth that Faisal had wielded as a weapon had opened, in Lacey's phrase, a Pandora's Box.
Common questions
What caused the 1973 oil crisis?
The 1973 oil crisis was caused by an oil embargo declared by the Organization of Arab Petroleum Exporting Countries (OAPEC) in October 1973, after the United States authorized $2.2 billion in emergency military aid to Israel during the Yom Kippur War. King Faisal of Saudi Arabia, who had warned Washington through multiple channels that an embargo was possible, announced the embargo on the afternoon of the 19th of October 1973.
How much did oil prices rise during the 1973 oil embargo?
The price of oil rose by nearly 300% during the 1973 oil crisis, from approximately $3 per barrel to nearly $12 per barrel globally. By late December 1973, OPEC formally raised the posted price from $5 to $11.65 per barrel at a conference in Vienna.
Which countries were targeted by the 1973 OAPEC oil embargo?
The initial targets were Canada, Japan, the Netherlands, the United Kingdom, and the United States. The embargo was later extended to Portugal, Rhodesia, and South Africa. OAPEC demanded a complete Israeli withdrawal from all territories beyond the 1949 Armistice border as the condition for lifting it.
When was the 1973 oil embargo lifted and why?
King Faisal of Saudi Arabia ended the oil embargo on the 18th of March 1974. The decision came after Anwar Sadat reported that the United States was being more evenhanded in the Arab-Israeli dispute and Henry Kissinger agreed to sell Saudi Arabia weapons previously withheld. Saudi Arabia also held billions of dollars in Western banks, and the inflation triggered by the embargo threatened the value of those holdings.
What were the long-term effects of the 1973 oil crisis on the United States?
The Federal Energy Administration estimated in a 1975 report to Congress that the embargo cost roughly 500,000 Americans their jobs and produced a GNP loss of between $10 billion and $20 billion. The crisis prompted a shift toward energy exploration in new regions, increased interest in nuclear power, conservation measures, and a push for what Nixon called Project Independence to achieve energy self-sufficiency by 1980.
Was the 1973 oil embargo considered a political success?
Most scholars consider the embargo a failure by its own stated goals. Roy Licklieder concluded in his 1988 book Political Power and the Arab Oil Weapon that target nations did not change their policies on the Arab-Israeli conflict, and that Israel did not withdraw to the 1949 Armistice line. Robert Lacey wrote that the embargo "did not achieve a single one of its stated objectives," though Daniel Yergin argued it "remade the international economy."
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