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Historical Oil Prices: The 1973 Oil Crisis
Crude oil is perhaps the most precious commodity in the planet in terms of political value and international affairs. The problem with the crude oil supply in the world is that too few countries sit over the vast majority of oil reserves.
The whole world is in need of petroleum products for fueling economic and industrial growth. But the production and supply of petroleum products is confined to and controlled by a handful of countries. The chief oil producing countries in the world include Russia, Nigeria, Venezuela, Indonesia, and Gulf countries such as Saudi Arabia, United Arab Emirates, Qatar, Iraq, Iran, and Kuwait.
The economies of a majority of the Gulf countries depend solely on oil. Oil riches are what propel other industries and sectors in these countries. The 1973 oil crisis is the result of these countries deciding to "teach a lesson" to other countries who supported Israel, the eternal rival of the Arab countries, during the Yom Kippur war in 1973.
The decade of 1970s started with relationship between Arab countries and the United States of America becoming tenser than ever. Arab countries were selling crude oil for a very cheap price, but in turn getting other things at very high prices. Their dissatisfaction and other political developments paved the way for the creation of the Organization of Petroleum Exporting Countries (OPEC). The organization was intended to safeguard the interests of the member countries, individually and collectively. The countries were mulling over an increase in the sales price of crude oil to the Western countries.
About that time the Yom Kippur war between Israel and Arab countries broke out in 1973. In the beginning Egypt and Syria attacked Israel. Then other Arab countries joined with their Arab allies. But Israel had the support of the United States and other Western countries. The Israeli military was one of the strongest in the world and their weaponry was highly sophisticated. On the other hand, the military of the Arab countries was very weak. As a result, Israel was able to win the war. The Arab countries, scorned by the defeat, decided to cut the oil supply to the United States and other countries that had helped Israel.
Till that time, the consumption of petroleum products had been rising at an annual rate of 5% in the United States. Suddenly the supply of crude oil was stopped in 1973. The price increased and a crisis loomed. The government started negotiating with the Arab countries and alternate mechanisms were sought. At that time, the Cold War was raging at its full intensity. So, buying oil from Russia, the major non-Arab oil producing country, was out of question.
At the peak of the crisis, the price of oil had increased four times its value before the crisis. But in 1974, the United States government managed to strike a deal with the Gulf countries on this regard and supply of crude oil resumed, which saved the Western world from a severe energy crisis.
About the Author John Smith is a professional oil and gas landman actively working in the State of Texas. John is also an avid blogger with multiple websites including Landman Blog.
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