Energy Crises of the 1970s
During the 1970s, two major energy crises took place when the USA, Canada, Western Europe, Australia and New Zealand faced significant fuel shortages which led to higher petroleum prices. The surging oil prices subsequently led to stagnant economic growth in many countries and led to the coinage of the term “stagflation”. The 1973 and 1979 incidents are considered to be milestones which helped drive a shift towards energy-saving technologies and also towards energy independence of countries. As the supply of Russian oil to global consumers becomes a contentious issue, let’s rewind to what took place during those energy crises and how it reshaped Western countries’ outlook towards oil supply.
1973 oil embargo
The Yom Kippur War was fought between Israel and a coalition of Arab states led by Egypt and Syria. The US had provided material and logistical support to Israel during this war. In retaliation, the Organization of Arab Petroleum Exporting Countries (OAPEC) announced an oil embargo where oil shipments to the United States and other countries would be limited or stopped. The US commenced negotiations with Arab oil producers to end the blockade and this was achieved in March 1974. However, there were many long-lasting impacts, especially since OPEC was the primary crude oil supplier to industrialized economies, and the steep price rise (from US$3 per barrel to US$12 per barrel) meant gasoline had to be rationed in US and other Western countries. Widespread unemployment and raging inflation led to slowing economic growth and this was known as the “oil shock”. On an international level, the oil price increase changed competitive positions in industries such as automobiles.
1979 energy crisis
In the wake of the Iranian Revolution in 1979, the Iranian oil sector was shattered. Once the Ayatollah Khoemini regime took charge, it was observed that the oil exports were inconsistent and volumes were lower, thereby forcing prices to shoot up. Being a major oil producer, the effects of Iran’s diminished capacity led to widespread panic and even the initiative taken by OPEC nations to increase production in order to offset the decline, could not really mitigate the crisis. The price of oil rose from US$ 15.85 per barrel to US$ 39.50 per barrel over 12 months in 1978-1979 and deregulating domestic oil price controls allowed US oil output to rise sharply with a corresponding fall in oil imports. Globally, industrialized nations began to reduce their dependence on OPEC oil due to which OPEC’s market share fell from 50% in 1979 to 29% in 1985. Industries such as metal fabrication were adversely impacted due to slowing demand and consumption.
Final Thoughts
The fallout of the energy crises of 1973 and 1979 spurred the West to reduce its dependency on Arab oil producing and exporting nations to meet its energy demands. Correspondingly, multibillion-dollar research programs were initiated to develop alternatives to oil such as electric utilities and nuclear power. Non-OPEC oil production took off, driven by increased interest in researching and locating new oil fields and energy sources. Thus, the energy crises of the 1970s led to a shift in the world balance of oil supply and demand which is continuing till today. There is a saying that a crisis has the potential to lead to great learnings; this case study validates this in real life!