OPEC OIL CRISIS OF 1970’S

Venkatratna
Trivikram
Sridhar
Sunil
Prabhakar
Praneeth
Mahesh
 OPEC
The Organization of the Petroleum Exporting Countries
(OPEC), which then consisted of twelve countries, including
Iran, seven Arab countries, plus Venezuela, Indonesia, Nigeria,
and Ecuador, had been formed at a Baghdad conference on
September 14, 1960. OPEC was organized to resist pressure by
the "Seven Sisters" (mostly owned by U.S., British, and Dutch
nationals) to reduce oil prices and payments to producing
countries.
The 1973 oil crisis started in Oct,1973, When the members of
OAPEC proclaimed an oil embargo in response to the U.S.
decisions to re- supply the Israeli military.
 HOW IT HAPPENED
• 1973–1974 stock market crash begins.

• September 15- The OPEC declares a negotiating front to pressure for price increases an
d an end to support of Israel, based on the 1971 Tehran agreement.

• October 6- the fourth Arab-Israeli War starts.

• October 8 ~ October 10- OPEC negotiations with oil companies to revise the 1971 Tehra
n price agreement fail.

• October 12- The United States initiates Operation Nickel Grass, an overt strategic airlift
operation to provide weapons and supplies to Israel during the Yom Kippur War.

• October 16- Saudi Arabia, Iran, Iraq, Abu Dhabi, Kuwait, and Qatar unilaterally raise pos
ted prices by 17% to $3.65 per barrel and announce production cuts.
 Cont…
• OPEC cut production of oil and placed an embargo on shipments of cru
de oil to the West, with the United States and the Netherlands specifica
lly targeted.

• October 17- OPEC oil ministers agree to use oil as a weapon to punish t
he West for its support of Israel in the Arab-Israeli war.

• October 19- US President Richard Nixon requests Congress to appropria

te $2.2billion in emergency aid to Israel, including $1.5 billion in out-rig
ht grants.

• November 5- Arab producers announce a 25% output cut and a further

5% cut is threatened.

• November 23- The Arab embargo is extended to Portugal, Rhodesia, an

d South Africa.
Cont…
• November 27- U.S. President Richard Nixon signs the Emergency Petroleu
m Allocation Act authorizing price, production, allocation and marketing c
ontrols.

• December 9- Arab oil ministers agree to another 5% cut for non-friendly c

ountries.

• December 25- Arab oil ministers cancel the 5% output cut for January.

• January 7 ~ January 9, 1974- OPEC decides to maintain the prices until

April 1, 1974.

• March 17- Arab oil ministers, with the exception of Libya, announce the
end of the embargo against the United States.

• December 1974—The 1973–1974 stock market crash ends.

 SUPPLY

DEMAND CRISIS

YOM KIMPUR WAR

 SITUATIONAL ANALYSIS
• U.S. oil consumption was high in the early 1970’s, while U.S.
oil production declined
• In 1973, 36% of energy consumption was in foreign oil, while
in 1970 it had been 22%
• The Nixon administration was in office, the Watergate
scandal was at its height in 1973, providing limited strength
in policy formulation, and little potential for an effective
response to the oil embargo.
• Arab-Israeli conflicts had already produced a growing tension
between U.S. and Arab countries.
• The OPEC (Organization of Petroleum Exporting Countries)
cartel led to rising gas prices in early 1970's 
Cont…

• U.S. policy flaws were recognized as a major cause of the crisis

• Imports of oil to the U.S. dropped from 6 million in September 1973

to 5 million in subsequent months.

• Nov. 27, 1973 Nixon signed the Emergency Petroleum Allocation Act,
embracing government regulation.

• 'Project Independence' was created in hopes of freeing the U.S.

completely from foreign oil dependence by 1980.

• Year 1973 represented dramatic shift in balance of power towards

OPEC.
 ALTERNATIVES
• Non-OPEC countries.
• Renewable sources of energy.
• They could increase their own production and
reduce their consumption.
• Proper U.S policy
• Neutrality
NON-OPEC COUNTRIES
 World Oil Supply
Top World Oil Net Exporters

Country Net Exports (million bbl/d)

7.84
1) Saudi Arabia
4.31
2) Russia
3.11
3) Norway
2.66
4) Venezuela
2.59
5) Iran
2.18
6) United Arab Emirates
2.09
7) Iraq
2.05
8) Kuwait
1.86
9) Nigeria
1.44
10) Mexico
1.29
11) Libya
1.22
12) Algeria
Red: OPEC member
1.06
13) United Kingdom Blue: Non-OPEC member
 World Oil Supply
Top World Oil Producers,
Country Production Estimates (million bbl/d)
1) Saudi Arabia 9.12
2) United States 9.08 (5.83 of which was crude oil)
3) Russia 6.71
4) Iran 3.81
5) Mexico 3.48
6) Norway 3.32
7) China 3.25
8) Venezuela 3.14
9) United Kingdom 2.75
10) Canada 2.74
11) Iraq 2.59
12) United Arab Emirates 2.51
13) Kuwait 2.25
14) Nigeria 2.15
15) Indonesia 1.56
16) Brazil 1.54
17) Libya 1.47
Red: OPEC member
18) Algeria 1.43
Blue: Non-OPEC member
EVALUATION
 POSITIVES EFFECTS
•The increase in the price of oil had a dramatic effect on oil
exporting nations, for the countries of the Middle East who had
long been dominated by the industrial powers were seen to have
acquired control of a vital commodity.

•U.S. attitudes toward the sources of energy changed drastically

•Such national fear of the dependence on foreign oil resulted in

the federal approval of the Trans-Alaska Pipeline in 1973, in
order to capitalize on domestic oil
Cont..

•Gas “eating” cars became undesirable, and many Americans turned

to buy smaller European and Japanese cars.
• Carpooling and mass transit became popular topics.
•People began to consider the causes of environmental degradation
and not just the effects.
 NEGATIVES EFFECTS

• The world economy still grew by 6.9 % in 1973, the growth

rate fell to 2.1 % in 1974 and to 1.4 % in 1975.

• Worldwide trade also suffered significantly. After growth

rates of 12 % in 1973, growth was negative in the following
two years at -5.4 % (1974) and -7.3 % (1975).

• Another important factor which changed significantly after

the crisis was the flow of foreign direct investments (FDI).

• Another significant development was inflation, which more

than tripled from 1972 to 1974 from 3.3 % to11.1 %.
 Cont…
• In the United States, the retail price of a gallon of gasoline
(petrol) rose from a national average of 38.5 cents in May
1973 to 55.1 cents in June 1974.

• New York Stock Exchange shares lost $97 billion in value in

six weeks.
 EFFECTS ON COUNTRIES
On Oil Consuming Countries
Increased oil prices in western world with the strongest effect
on United States (prices jumped from 25 cents to over dollar
in couple of months. Oil consumption in United States
dropped up to 20 percent
Non-OPEC countries
Realized their political power on the world by controlling oil
exports found that they could increase oil prices and make
much more profit than before.
RECOMMANDABLE CHOICE
• More concentration on renewable energy.

• solar energy (commercial, solar thermal conversion,

photovoltaic cells)
• wind power
• tidal power
• ocean thermal conversion
• biomass
• geothermal energy
• conversion of coal into gas
• extraction of oil from tar sands
• efforts at tertiary recovery from oil deposits
RECOMMANDABLE CHOICE Cont..
 RECOMMANDABLE CHOICE Cont..
• Less dependence on OPEC.
 RECOMMANDABLE CHOICE Cont..
• Pricing mechanism
ACTUAL CHOICE / RATIONALE
• Oil price decontrol became a central
policy issue
• triggered great developments in the way
of alternative energy forms.
• Prices for gas rose significantly, longer
lines appeared at the filling stations,
and fear of OPEC’s control over the
economy grew quickly.
• Americans turned to buy smaller and
fuel efficient cars.
 CONCLUSION
• Even though 1973 Oil Crisis showed how dependent
western world was on foreign oil and how vulnerable
they were to limited oil supply, this event made
many realize how inefficient they were with energy.

• To prevent the Arabs from imposing more

embargoes the US leaders began to work harder to
promote peace talks between the Arabs nations and
Israel
 CONCLUSION (Cont..)
• From a positive aspect, oil crisis was a good
awakening since it made the world create and be
more energy efficient. Without the oil crisis, the
development in fuel-efficiency cars and products as
well as advances in alternative and renewable energy
sources might not have reached the stage it is in
now.
 CONCLUSION (Cont..)
Example:
• The Brazilian government implemented a very large project
called "Proálcool" (pro-alcohol) that mixed ethanol with
gasoline for automotive fuel. This project, which produces
ethanol from sugar cane, continues and has reduced oil
imports and decreased the price of fuel.

• To supplement Israel's over-taxed power grid, Harry Zvi Tabor,

the father of Israel's solar industry, developed the prototype
for a solar water heater now used in over 90% of Israeli homes.