# 1973 oil crisis

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In October 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) announced that it was implementing a total oil embargo against countries that had supported Israel at any point during the 1973 Yom Kippur War, which began after Egypt and Syria launched a large-scale surprise attack in an ultimately unsuccessful attempt to recover the territories that they had lost to Israel

## Key facts

## Overview

In October 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) announced that it was implementing a total oil embargo against countries that had supported Israel at any point during the 1973 Yom Kippur War, which began after Egypt and Syria launched a large-scale surprise attack in an ultimately unsuccessful attempt to recover the territories that they had lost to Israel during the 1967 Six-Day War. In an effort that was led by Faisal of Saudi Arabia, the initial countries that OAPEC targeted were Canada, Japan, the Netherlands, the United Kingdom, and the United States. This list was later expanded to include Portugal, Rhodesia, and South Africa. In March 1974, OAPEC lifted the embargo, but the price of oil had risen by nearly 300%: from US$3/barrel to nearly US$12/barrel globally. Prices in the United States were significantly higher than the global average. After it was implemented, the embargo caused an oil crisis, or "shock", with many short- and long-term effects on the global economy as well as on global politics. The 1973 embargo later came to be referred to as the first oil shock. A second oil shock occurred in 1979 in the aftermath of the Iranian Revolution.

## Arab-Israeli conflict

Following the Israeli Declaration of Independence in 1948, there has been conflict between Arabs and Israelis in the Middle East, including several wars. The Suez Crisis, also known as the Second Arab–Israeli war, was sparked by Israel's southern port of Eilat being blocked by Egypt, which also nationalized the Suez Canal belonging to French and British investors. As a result of the war, the Suez Canal was closed for several months between 1956 and 1957. The Six-Day War of 1967 included an Israeli invasion of the Egyptian Sinai Peninsula, which resulted in Egypt closing the Suez Canal for eight years. Following the Yom Kippur War, the canal was cleared in 1974 and opened again in 1975. OAPEC countries cut production of oil and placed an embargo on oil exports to the United States after Richard Nixon requested $2.2 billion to support Israel's war effort. Nevertheless, the embargo lasted only until January 1974, though the price of oil remained high afterwards.

## American oil production decline

By 1969, American domestic production of oil was peaking and could not keep pace with increasing demand from vehicles. The US was importing 350 million barrels (56 million cubic metres) per year by the late 1950s, mostly from Venezuela and Canada. Because of transportation costs and tariffs, it never purchased much oil from the Middle East. In 1973, US production had declined to 16% of global output.  Eisenhower imposed quotas on foreign oil that would stay in place between 1959 and 1973. Critics called it the "drain America first" policy. Some scholars believe the policy contributed to the decline of domestic US oil production in the early 1970s.  The cheapness of oil compared with coal led to the decline of the coal industry. In 1951, 51% of the United States' energy came from coal, and by 1973, only 19% of American industry was coal-based. The decline in domestic oil production, combined with the country's increasing reliance on oil as a source of power, made the US economy vulnerable to a foreign oil embargo. When Richard Nixon became US president in 1969, he assigned George Shultz to head a committee to review the Eisenhower-era quota program. Shultz's committee recommended that the quotas be abolished and replaced with tariffs, but Nixon decided to keep the quotas due to vigorous political opposition.  Nixon imposed a price ceiling on oil in August 1971 as demand for oil was increasing and production was declining, which increased dependence on oil imports as consumption was bolstered by low prices.  In 1973, Nixon announced the end of the quota system. Between 1970 and 1973 US imports of crude oil had nearly doubled, reaching 6.2 million barrels per day in 1973. Until 1973, an abundance of oil supply had kept the market price of oil lower than the posted price. In 1970, American oil production peaked and the United States began to import more oil. Oil imports rose by 52% between 1969 and 1972. By 1972, 83% of the American oil imports came from the Middle East. Throughout the 1960s, the price for a barrel of oil remained at $1.80, meaning that with the effects of inflation considered the price of oil in real terms got progressively lower throughout the decade, with Americans paying less for oil in 1969 than they had in 1959. Even after a price for a barrel of oil rose to $2.00 in 1971, adjusted for inflation, people in the Western nations were paying less for oil in 1971 than they had in 1958. The extremely low price of oil served as the basis for the "long summer" of prosperity and mass affluence that began in 1945.

## OPEC

The Organization of Petroleum Exporting Countries (OPEC), was founded by five oil producing countries at a Baghdad conference on 14 September 1960. The five founding members of OPEC were Venezuela, Iraq, Saudi Arabia, Iran and Kuwait. OPEC was organized after the oil companies slashed the posted price of oil, but the posted price of oil remained consistently higher than the market price of oil between 1961 and 1972. In 1963, the Seven Sisters controlled 86% of the oil produced by OPEC countries, but by 1970 the rise of "independent oil companies" had decreased their share to 77%. The entry of three new oil producers—Algeria, Libya and Nigeria—meant that by 1970, 81 oil companies were doing business in the Middle East. In the early 1960s Libya, Indonesia and Qatar joined OPEC. OPEC was generally regarded as ineffective until political turbulence in Libya and Iraq strengthened their position in 1970. Additionally, increasing Soviet influence provided oil producing countries with alternative means of transporting oil to markets. Under the Tehran Price Agreement of 1971, signed on 14 February, the posted price of oil was increased and, due to a decline in the value of the US dollar relative to gold, certain anti-inflationary measures were enacted. A severe drain on US gold reserves lead to higher inflation and lack of confidence in the strength of the dollar, President Nixon issued Executive Order 11615 on August 15, 1971, which closed the gold window. This action made the dollar inconvertible to gold directly, except on the open market, and was soon dubbed the Nixon Shock, leading eventually to the collapse of the Bretton Woods system in 1976. Because oil was priced in dollars, oil producers' real income decreased when the dollar started to float free of the old link to gold. In September 1971, OPEC issued a joint communiqué stating that from then on, they would price oil in terms of a fixed amount of gold. After 1971, OPEC was slow to readjust prices to reflect this depreciation. From 1947 to 1967, the dollar price of oil had risen by less than two percent per year. Until the oil shock, the price had also remained fairly stable versus other currencies and commodities. OPEC ministers had not developed institutional mechanisms to update prices in sync with changing market conditions, so their real incomes lagged. The substantial price increases of 1973–1974 largely returned their prices and corresponding incomes to former levels in terms of commodities such as gold.

## Countdown to the October War

Arab oil producing countries had attempted to use oil as leverage to influence political events on two prior occasions—the first was the Suez Crisis in 1956 when the United Kingdom, France and Israel invaded Egypt. During the conflict the Syrians sabotaged both the Trans-Arabian Pipeline and the Iraq–Baniyas pipeline, which disrupted the supply of oil to Western Europe. The second instance was when war broke out between Egypt and Israel in 1967, but despite continued Egyptian and Syrian enmity against Israel, the embargo lasted only a few months. Most scholars agree that the 1967 embargo was ineffective. Although some members of the Organization of Arab Petroleum Exporting Countries (OAPEC) supported the use of oil as a weapon to influence the political outcome of the Arab–Israeli conflict, Saudi Arabia had traditionally been the strongest supporter of separating oil from politics. The Saudis were wary of the tactic due to the availability of oil from non-Arab oil producing countries, and in the decades leading up to the crisis, the region's conservative monarchies had grown dependent on Western support to ensure their continued survival as Nasserism gained traction. On the other hand, Algeria, Iraq and Libya had strongly supported the use of oil as a weapon in the conflict. Arab newspapers like the Egyptian Al-Ahram, Lebanese An-Nahar and Iraqi Al-Thawra had historically been supportive of the use of oil as a weapon. In 1970, President Nasser of Egypt died and was succeeded by Anwar Sadat, a man who believed in the diplomacy of surprise, in engaging in sudden moves to upset the diplomatic equilibrium. Sadat liked to say that his favourite game was backgammon, a game where skill and persistence was rewarded, but was best won by sudden gambles, making an analogy between how he played backgammon and conducted his diplomacy. Under Nasser, Egypt and Saudi Arabia had engaged what was known as the Arab Cold War, but Sadat got along very well with King Faisal of Saudi Arabia, forming an alliance between the most populous Arab state and the wealthiest Arab state. Unlike the secularist Nasser, Sadat was a pious Muslim and he had a strong personal rapport with King Faisal, who was an equally pious Muslim. The man largely in charge of American foreign policy, the National Security Adviser, Henry Kissinger, later admitted that he was so engrossed with the Paris peace talks to end the Vietnam war that he and others in Washington missed the significance of the Egyptian-Saudi alliance. At the same time that Sadat moved closer to Saudi Arabia, he also wanted a rapprochement with the United States and to move Egypt away from its alliance with the Soviet Union. In 1971, the US had information that the Arab states were willing to implement another embargo. In July 1972, Sadat expelled all 16,000 of the Soviet military personnel in Egypt in a signal that he wanted better relations with the United States. Kissinger was taken completely by surprise by Sadat's move, saying: "Why has he done me this favor? Why didn't he demand all sorts of concessions first?" Sadat expected as a reward that the United States would respond by pressuring Israel to return the Sinai to Egypt, but after his anti-Soviet move prompted no response from the United States, by November 1972 Sadat moved again closer to the Soviet Union, buying a massive amount of Soviet arms for a war he planned to launch against Israel in 1973. For Sadat, cost was no object as the money to buy Soviet arms came from Saudi Arabia. At the same time, Faisal promised Sadat that if it should come to war, Saudi Arabia would embargo oil to the West. In April 1973, the Saudi Oil Minister Ahmed Zaki Yamani visited Washington to meet Kissinger and told him that King Faisal was becoming more and more unhappy with the United States, saying he wanted America to pressure Israel to return all the lands captured in the Six Day War of 1967. In a later interview, Yamani accused Kissinger of not taking his warning seriously, saying all he did was to ask him not to speak anymore of this threat. Angry at Kissinger, Yamani, in an interview with the Washington Post on April 19, 1973, warned that King Faisal was considering an oil embargo. At the time, the general feeling in Washington was the Saudis were bluffing and nothing would come of their threat to impose an oil embargo. The fact that Faisal's ineffectual half brother King Saud had imposed a crippling oil embargo on Britain and France during the Suez War of 1956 was not considered an important precedent. The CEOs of four of the United States' oil companies, after speaking with Faisal, arrived in Washington in May 1973 with the warning that Faisal was considerably tougher, more intelligent and more ruthless than his half-brother Saud whom he had deposed in 1964, and that his threats were serious. Kissinger declined to meet the four CEOs. In an assessment done by Kissinger and his staff about the Middle East in the summer of 1973, the repeated statements by Sadat about waging jihad against Israel were dismissed as empty talk, while the warnings from King Faisal were likewise regarded as inconsequential. In September 1973, Nixon fired Rogers as Secretary of State and replaced him with Kissinger. Kissinger later stated he had not been given enough time to know the Middle East, as he settled into the State Department's office at Foggy Bottom as Egypt and Syria attacked Israel on 6 October 1973.

## The war and the "oil weapon"

On 6 October 1973, the Yom Kippur began when Egypt attacked the Bar Lev Line in the Sinai Peninsula and Syria launched an offensive in the Golan Heights, both of which had been occupied by Israel during the 1967 Six-Day War. Faisal of Saudi Arabia was supportive, and on 8 October 1973, he told two Egyptian envoys: "You have made us all proud. In the past we could not lift our heads up. Now we can". He promised to give to Egypt a quality of aid worth $200 million US dollars to assist with the war effort, and stated he was willing to use the "oil weapon" if necessary to support Egypt. The war began during the height of the Watergate scandal; as such Nixon largely let Kissinger manage foreign policy as he, Nixon, was distracted by the scandal. Kissinger promised Israeli Prime Minister Golda Meir that the United States would replace its losses in equipment after the war. However, he sought initially to delay arm shipments to Israel as he believed it would improve the odds of making peace along the lines of United Nations Security Council Resolution 242 calling for a "land for peace" deal if an armistice was signed with Egypt and Syria gaining some territory in the Sinai and the Golan Heights respectively. Nixon had ordered an arms lift to Israel on 12 October 1973, but Kissinger used the excuse of bureaucratic delays to limit the amount of weapons and ammunition sent to Israel. The Arab concept of the "peace of the brave", i.e. a victorious leader being magnanimous to his defeated opponents, meant there was a possibility that Sadat at least would make peace with Israel provided that the war ended in such a way that Egypt was not perceived to be defeated. Likewise, Kissinger regarded Meir as being rather arrogant and believed that an armistice that ended the war in a manner that was not an unambiguous Israeli victory would make her more humble.

## Cold War concerns

As both Syria and Egypt lost much equipment during the fighting, the Soviet Union began to fly new equipment in, starting on 12 October. Soviet flights to Syria and Egypt were recorded by the British radar stations in Cyprus. Though the Soviets were flying in an average of 60 flights per day, exaggerated accounts appeared in Western newspapers speaking of "one hundred flights per day". At this point, both Nixon and Kissinger began to see the October War more in terms of the Cold War rather than Middle Eastern politics, both seeing the Soviet arms lifts to Egypt and Syria as a Soviet power play that required an American answer. On October 12, 1973, US president Richard Nixon authorized Operation Nickel Grass, a strategic airlift to deliver weapons and supplies to Israel in order to replace its materiel losses. The first American weapons to Israel arrived on 15 October 1973, and despite Nixon's orders the number of American planes flying into Tel Aviv were initially limited. After the first week of the war, the Israelis had halted the Syrian offensive in the Golan Heights and were pushing back the Syrians back towards Damascus. Along the Suez canal, however, there was heavy fighting, with the Egyptians holding their own.

## October OPEC summit and price increase

At an OPEC summit at the Sheraton Hotel in Kuwait City on 16 October 1973, it was announced the price of oil would go from $3.01 US dollars per barrel to $5.12 per barrel. The news about the war on 16 October was grim from the Arab viewpoint, with the Syrians steadily being pushed back, while Israelis had opened a counter-offensive against the Egyptians and crossed the Great Bitter Lake. Responses from stated representatives at the meeting were varied. Saudi Oil Minister Ahmed Zaki Yamani stated, in a 1981 interview, that "\[t\]he king still wanted to give America a chance to stay out of the fighting. So we agreed to cut back production by just 5 percent per month. A full embargo, we agreed, was something we would implement only if we felt that things were absolutely hopeless". The Iranian delegation left the summit after agreeing to the price increase, as the Shah of Iran only supported higher oil prices. The Oil Minister of Iraq, Sa'dun Hammadi demanded the "total nationalization" of all assets of American oil companies in the Middle East, the withdrawal of all Arab funds from the United States and for all Arab states to break diplomatic relations with the United States. The Libyan Oil Minister, Izz al-Din al-Mabruk, called for the nationalization of all the assets of all Western oil companies in the Middle East. The Saudi delegation led by Yemani, supported by the Algerian delegation, fought hard against the Iraqi and Libyan demands for an embargo, as Yemani maintained that forcing through an increase in the price of oil was the best way to influence the United States. Hammadi and the rest of the Iraqi delegation left upset as Yemani had won over the majority of the delegations to the Saudi viewpoint. The statement issued after midnight at the Sheraton Hotel was handwritten and, reflecting the tense talk, had several paragraphs crossed out while other paragraphs were written in by different hands. On 17 October, Arab oil producers cut production by 5% and threatened an oil embargo against Israel's wartime allies: the United States, the Netherlands, Rhodesia, South Africa, and Portugal.

## American arms lift

On 17–19 October 1973, the Saudi Foreign Minister, Omar Al Saqqaf, visited Washington together with the foreign ministers of Algeria, Kuwait and Morocco to warn that there was a real possibility of an oil embargo being imposed. Nixon promised him that the United States would mediate a settlement to the war that would be "peaceful, just and honorable" to both sides. He had ended the Vietnam war on what he felt was an honorable basis and now intended to end the October war in the same manner. Saqqaf complained to King Faisal that Nixon seemed more interested in a dispute about "a burglary" (i.e. the Watergate scandal) than about the war. During a press conference, an American reporter mocked the threat of an embargo, contemptuously saying the Saudis "could drink their oil", leading Saqqaf to reply in anger "All right, we will!". Israel took heavy losses in men and materiel during the fighting against Egypt and Syria, and on 18 October 1973, Meir requested $850 million worth of American arms and equipment to replace its materiel losses. Nixon decided, characteristically, to act on an epic scale; Instead of the $850 million worth of arms requested, he sent a request to Congress for some $2.2 billion worth of arms to Israel, which was promptly approved. Nixon, whose administration was being badly battered by the Watergate scandal, felt that a bold foreign policy move might resuscitate his administration. Nixon later boasted in his memoirs that the US Air Force flew more sorties to Israel in October 1973 than it had during the Berlin Airlift of 1948–49, flying in a gargantuan quantity of arms, though he also admitted that by the time the arms lift had begun, the Israelis had already "turned the tide of battle" in their favor, making the arms lift irrelevant to the outcome of the war. In an interview with the British historian Robert Lacey in 1981, Kissinger later admitted about the arms lift to Israel: "I made a mistake. In retrospect it was not the best considered decision we made".

## Embargo

The arms lift enraged King Faisal of Saudi Arabia. Faisal was angry that Israel had only asked for $850 million worth of American weapons, and instead received an unsolicited $2.2 billion worth of weapons, which he perceived as a sign of the pro-Israeli slant of American foreign policy. Faisal also felt insulted that Nixon had just promised Saqqaf an "honorable" peace the day before he submitted the request to Congress for some $2.2 billion worth of arms for Israel, which he saw as an act of duplicity on Nixon's part. Faisal had been opposed to a total embargo and only agreed to the 5% cut on 17 October under pressure from other Arab states. Faisal felt his efforts on behalf the United States were not being appreciated in Washington, which increased his fury at Nixon. On the afternoon of 19 October 1973, Faisal was in his office when he learned about the United States sending $2.2 billion worth of weapons to Israel, and discussed the issue with two of his closest advisers, Abdullah ibn Abdul Rahman and Rashad Pharaon. The king called Yamani at about 8 pm, and told him he was needed at the Riyassa Palace immediately. Yamani told the king: "The TV news goes out at nine. If you make a decision now, we can get it announced at once". The king replied "Write this down" and announced he was placing a total embargo on the United States. Most of the other oil-producing Arab states joined the embargo. Algeria, Iraq, and Libya promoted the embargo, but did not actively enforce it. The embargo was accompanied by gradual monthly production cuts—by December, production had been cut to 25% of September levels. This contributed to a global recession and increased tension between the United States and several of its European allies, who faulted the US for provoking an embargo by providing what many viewed as unconditional assistance to Israel. OAPEC demanded a complete Israeli withdrawal from all territories beyond the 1949 Armistice border. The embargo lasted from October 1973 to March 1974.

## Immediate effects

Because every Arab state except for Iraq and Libya joined the oil embargo, oil exports from the Middle East to the West were down by 60–70% by November 1973. Japan and the nations of western Europe imported some 75% of their oil from the Near East. The embargo led to immediate and sharp price raises, as Lacey noted that "competing desperately for dwindling supplies, consumers showed themselves willing to pay unparalleled money for their oil". Saudi Arabia had 25% of the world's oil reserves. The embargo imposed on the United States led to shortages of oil in the United States, which set an inflationary spiral, as the new high prices for oil in the American market led to sharp increases of the price of oil in nations not subjected to the embargo. When the Iranian state oil company held an auction on 16 December 1973, bids for some $17 US dollars per barrel of oil were made. In late December 1973, OPEC held a conference in Vienna when it was announced the price for a barrel of oil was to increase from $5 US dollars per barrel to $11.65 US dollars per barrel. Faisal was opposed to the price increase, which was largely the work of the Iranian delegation. On 22 February 1974, King Faisal chaired the second summit of Islamic states in Lahore, which, unlike the first summit that Faisal had chaired in 1969, was not boycotted by Iraq and Syria. Faisal was acclaimed as a conquering hero who humiliated and humbled the West by wrecking its economy. The prime minister of Pakistan, Zulfikar Ali Bhutto, opened the conference by stating: "The armies of Pakistan are the armies of Islam. We shall enter Jerusalem as brothers-in-arms!"

## Attempts at resolution

On November 7, 1973, Kissinger flew to Riyadh to meet King Faisal and ask him to end the oil embargo in exchange for promising to be "evenhanded" with the Arab-Israeli dispute. As the plane carrying him prepared to land in Riyadh, Kissinger was clearly nervous at the prospect of negotiating with the stern Wahhabi Faisal who had a marked dislike of Jews. During a summit in Cairo the day before, Kissinger asked Sadat what Faisal was like and was told: "Well, Dr. Henry, he will probably go on with you about Communism and the Jews". King Faisal's two great hatreds were communism and Zionism, as he believed that the Soviet Union and Israel were plotting together against Islam. When King Faisal was shown a translation into Arabic of The Protocols of the Learned Elders of Zion, he instantly believed in the authenticity of The Protocols and therefore talked to anyone who would listen about what he had learned, despite the fact that The Protocols had been exposed as a forgery in 1921.

Kissinger discovered that King Faisal was a worthy companion to Lê Đức Thọ in terms of stubbornness; the king accused the United States of being biased in favor of Israel, going on in a long rant about the balefulness of "Jewish Communists" in Russia and Israel, and despite all of Kissinger's efforts to charm him, refused to end the oil embargo. Instead, Faisal 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... Before the Jewish State was established, there existed nothing to harm good relations between Arabs and Jews. There were many Jews in Arab countries. When the Jews were persecuted in Spain, Arabs protected them. When the Romans drove the Jews out, Arabs protected them. At Yalta, it was Stalin who said there had to be a Jewish state...Israel is advancing Communist objectives...Among those of the Jewish faith there are those who embrace Zionism...Most of the immigration to Israel is from the Soviet Union...They want to establish a Communist base right in the Middle East...And now, all over the world, the Jews are putting themselves into positions of authority". Initially, Secretary of Defense James Schlesinger suggested to Kissinger that the United States invade Saudi Arabia and another Arab countries and seize their oil fields. Kissinger stated in a private state department meeting that it's “ridiculous that the civilized world is held up by 8 million savages... Can't we overthrow one of the sheikhs just to show that we can do it?” They formed a plan to invade Abu Dhabi, Kuwait, and Saudi Arabia. Kissinger publicly threatened "countermeasures" in a November 21, 1973 press conference if the embargo was not lifted, and the Saudis responded with threatening further oil cuts and to burn their oil fields if the US military invaded. After the CIA confirmed these threats, Kissinger gave up military intervention and decided to deal with Israel's troop withdrawals, settling on diplomatic solutions to the oil embargo.

## Sources

- 1973 oil crisis · Wikipedia: https://en.wikipedia.org/?curid=244180

Source: Wikipedia contributors — https://en.wikipedia.org/?curid=244180&oldid=1378160425

Licence: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/

Adaptation notice: Reformatted for XPay; the source may be abridged, restructured or translated. Consult the cited revision for the original.