The Oil Crisis of 1973 - Case Study Example

The Oil Crisis Of 1973 Student’s Name University Affiliation Reasons for the Oil Crisis Of 1973 Oil is an important natural commodity which is used for industrial and domestic purposes. It is used as a source of energy in industries, fuel in the transport sector and domestic lighting. Oil is, therefore, a key contributor to the economic development of any country. Oil and natural gas prices are alarmingly volatile (Komor, 2004). There was a major oil crisis in 1973 which caused profound effects on economies especially in the western nations. In October 1973, the Organization of Petroleum Exporting Countries (OPEC) countries halted exportation of oil to the United States, UK, Canada and several other Western countries. During this year, the Arab world had entered into war with Egypt and Syria. The war was due to the fact that the Palestinian land was taken to form Israel nation. The war was an effort by the Arabs to recapture back the land. Israel was against this war and got support from the US and other Western European nations. This made the Arab oil producing countries to retaliate through oil embargo. This embargo banned exportation of oil and oil products to targeted nations. Oil production controls and cuts were introduced. The US supplied military and war weapons to aid Israel in the war and US troops were deployed in the Arab territories. The Arab countries united ready for attacks, but they were defeated by the Israel’s troops. As a result of this, the Arab oil producing nations made an agreement to retaliate to the countries supporting against the war through an oil embargo. According to Chakarova (2013), European countries and Japan are much more dependent on Gulf imports. With that realization, the Arab nations were sure of winning the war through the oil blackmail tactic. Backing Israel during the Yom Kippur War had both economical and political connotations. The Arab world was aware that Western nations, including the US were the major oil consumers. Due to the industrialized nature in those countries, oil dependency would be high. According to Szirmai (2005), several countries including South Korea, Taiwan, Brazil, India, Singapore and Israel have experienced impressive industrial growth since World War II. The major disadvantage is that those countries capacity to produce oil is lower than what they consume. The Arabs felt that high oil prices would drastically affect the economies of the Western countries Political strain was the major cause of the crises as demonstrated by the history of the oil crisis. Each nation wanted to exert their political supremacy without negotiations. The Arab world caused the war as it wanted to take back Palestinian land by force. Israel retaliated and was later joined by the US and other countries from the west. President Nixon became aware of these political challenges and initiated discussions with OPEC nations to end the embargo. A pull out by Israel from Golan Heights and Sinai was arranged. Despite the peace deal was never reached, the embargo was lifted in March 1974. The US should have adopted political neutrality towards this political turmoil. Some countries such as Japan felt that there was a too much support by the US to the Israelis. The Impact of the Oil Crisis in 1973 on the Developed Countries An interruption of the oil flow of the Middle Eastern oil would have very adverse effects for industrialized countries (Chakarova, 2013).The developed countries which include, US, Canada, UK and the other Western Nations were greatly affected by the oil crisis. Developed countries heavily relied on oil and gas for energy production in industries and in the transport sector. The oil production in developed countries was far below the consumption capacity. Most of the oil consumed by the western countries was imported from the Arab countries. The growth in power of OPEC and increasing tensions in the Middle East contributed to a growing awareness of import dependence by the Western nations. The oil embargo, therefore, impacted the countries negatively at that period both economically and politically. Oil fuels economic growth through supporting industries as a source of energy. The industries play a significant role in economic development. Inadequate oil for industrial consumption was the first problem to set in when the oil embargo was declared. Insufficient oil supplies caused the industries to perform below normal capacity. This impacted the country’s economy negatively due to underproduction. There were huge job losses in industries a problem which caused a ripple effect to the society due to unemployment. The cost of living become high since available oil was very expensive. The trade unions went in arms to advocate for better wages for the laborers as the cost of living was unbearable. The cost of food and other basic commodities shot up as the crisis escalated the inflation rates (Ilie, 2006). The motor industry was a big victim of the crisis. Transportation related industry suffered significantly due to lack of enough fuel. As oil prices continued, so did the costs related to transport business. The US market was forced to rethink about the fuel guzzling vehicles. Hasty policies and innovations were introduced in favor of low fuel consuming motor vehicles. Efforts were stepped up at the Federal level to put regulations into place regarding the fuel efficiency of the nation's automobile industry (Flory, 2013).Countries such as Japan had been producing fuel efficient vehicles all along. The crisis brought good fortune to Japan through increase in demand for lower fuel consumption cars. The exports of Japanese vehicles rose during that year due to increased demand for its cars. In US, some states like Detroit came up with a ban on fuel guzzling vehicles as a measure to control the crisis. The Arab oil dependent countries had to rethink on their energy policies during this crisis. New policies and measures on energy were introduced to help control the effect of the crisis. Nixon the US president by then issued several statements which included the establishment of the Energy Department, which later evolved into cabinet office. The sole purpose of this office was to develop energy policies in the US. These plans were being made to make US an energy independent country. Other initiatives aimed at energy saving were advocated which included the use of alternative energy sources like geothermal and solar power. The goal of U.S. policy between now and 2030 and beyond remains dedicated to finding a way to reduce the nation’s dependence upon Middle East and Venezuelan petroleum (Geri & McNabb, 2011). The oil crisis had degenerated into a cold war like action against western nations by the Arab world. Strains emerged in the relationship between countries which supported the Arab nations and those which supported the Israelis. Japan opted for the pro-Arabs policy while the US and other western countries adopted an anti-Arabs policy. That caused a lot of strain in international relations among nations. Conclusion Oil and other scarce natural resources issues should always be handled with a lot of sensitivity. Political undertones or affiliations should always be avoided at all cost. In any disagreements, negotiations are important, rather than the exertion of force. References Chakarova, V. (2013). Oil Supply Crises: Cooperation and Discord in the West. Lexington Books: Maryland. Flory, J. K. (2013). American cars, 1973-1980: every model, year by year. Jefferson, N.C.: McFarland & Company. Geri, L. R., & McNabb, D. E. (2011). Energy policy in the U.S.: politics, challenges, and prospects for change. Boca Raton: CRC Press. Ilie, L. (2006). Economic considerations regarding the first oil shock, 1973-1974. Romania: Lucian Blaga University of Sibiu. Komor, P. (2004). Renewable energy policy. New York: IUniverse, Inc. Szirmai, A. (2005). Dynamics of socio-economic development: an introduction. Cambridge, UK: Cambridge University Press. Read More