1970s Oil Crisis

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1970s Oil Crisis

• Understanding the Oil Crisis of the 1970s and
  how it connects to today.

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What do you glean from this 1970s Mad Magazine
comic?
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The 1970s Oil Crisis in a paragraph

• In October of 1973 Middles-eastern OPEC nations
  stopped exports of oil to the US and other
  western nations. They meant to punish the western
  nations that supported Israel, their foe, in the
  Yom Kippur War, but they also realized the strong
  influence that they had on the world through oil.
  
• Source for these slides Recession.org

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EMBARGO

• a government order imposing a trade barrier

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What this meant for Americans

• One of the many results of the oil embargo was
  shortages and higher prices all throughout the
  western world, particularly in America.
• The embargo forced America to consider many
  things about energy, such as the cost and supply,
  which up to 1973 no one had worried about.

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The crisis highlights World dependence on oil.

• What we see in this crisis is the fact that
  prices of commodities like oil play a much more
  vital role in our economy than most think.
• The world needs so much oil every day to run, and
  will literally need to pay whatever it costs, or
  it will cease to run.

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Besides gas, whats made from oil?

• Air conditioners, ammonia, anti-histamines,
  antiseptics, artificial turf, asphalt, aspirin,
  balloons, bandages, boats, bottles, bras, bubble
  gum, butane, cameras, candles, car batteries, car
  bodies, carpet, cassette tapes, caulking, CDs,
  chewing gum, cold, combs/brushes, computers,
  contacts, cortisone, crayons, cream, denture
  adhesives, deodorant, detergents, dice,
  dishwashing liquid, dresses, dryers, electric
  blankets, electricians tape, fertilizers,
  fishing lures, fishing nets, fishing rods, floor
  wax, footballs, glues, glycerin, golf balls,
  guitar strings, hair, hair color, hair curlers,
  hearing aids, heart valves, heating oil, house
  paint, ice chests, ink, insect repellent,
  insulation, jet fuel, life jackets, linoleum, lip
  balm, lipstick, loudspeakers, medicines, mops,
  motor oil, motorcycle helmets, movie film, nail
  polish, nylons, oil filters, paddles, paint
  brushes, paints, parachutes, paraffin, pens,
  perfumes, petroleum jelly, plastic chairs,
  plastic cups, plastic forks, plastic wrap,
  plastics, plywood adhesives, refrigerators,
  roller-skate wheels, roofing paper, rubber bands,
  rubber boots, rubber cement, rubbish bags,
  running shoes, saccharine, seals, shirts
  (non-cotton), shoe polish, shoes, shower
  curtains, solvents, solvents, spectacles,
  stereos, sweaters, table tennis balls, tape
  recorders, telephones, tennis rackets, thermos,
  tights, toilet seats, toners, toothpaste,
  transparencies, transparent tape, TV cabinets,
  typewriter/computer ribbons, tires, umbrellas,
  upholstery, vitamin capsules, volleyballs, water
  pipes, water skis, wax, wax paper

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More products made from oil means increasing oil
consumption.
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And for the West, more oil consumption means
increased dependence on the Middle East.

• Although the embargo ended only a year after it
  began in 1973, the OPEC nations had quadrupled
  the price of oil in the West. The embargo opened
  a new era in international relations.
• It was a political and economic achievement for
  the Middle East. The Middle East demonstrated
  that their natural resources, specifically oil,
  could be used as a political weapon.

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That political power has continued ever since
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The 1970s Oil Crisis in a paragraph

• In October of 1973 Middles-eastern OPEC nations
  stopped exports of oil to the US and other
  western nations. They meant to punish the western
  nations that supported Israel, their foe, in the
  Yom Kippur War, but they also realized the strong
  influence that they had on the world through oil.
  
• Source for these slides Recession.org

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What is OPEC?

• Organization of the Petroleum Exporting Countries
  (OPEC) is an association of countries that depend
  heavily on oil exports for their incomes.
• Its members work together to try to increase
  their revenue from the sale of oil on the world
  market.
• OPEC members produce about 40 percent of the
  world's oil and possess about 70 percent of the
  world's recoverable oil reserves.

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Why was OPEC created?

• OPEC was founded in 1960 by Iran, Iraq, Kuwait,
  Saudi Arabia, and Venezuela. At that time, the
  petroleum industry in those countries was
  controlled by United States and European oil
  companies.
• These Western companies paid the host governments
  income taxes and royalties (shares of their
  profits) based on the posted price the companies
  charged for crude oil on the world market.

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OPEC was created because of a price cut that
benefited the West and hurt the Middle East.

• In 1959 and 1960, oil production greatly exceeded
  world demand.
• The surplus that was thereby created prompted
  several of the major Western companies to cut the
  posted price and thus their payments to host
  governments.
• OPEC was founded in response to this price cut.

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Shift of OPEC policy towards the West in the 1970s

• OPEC had little influence on oil prices during
  the 1960's, when production expanded to keep pace
  with demand.
• In the 1970's, however, world demand for oil
  began to outgrow what was available from non-OPEC
  sources. In 1973, OPEC stopped consulting with
  Western oil companies and decided to raise oil
  prices in keeping with the rate of inflation (the
  rise of all prices).