JC History Tuition Online - How did the 1973 Oil Crisis affect the United States - Global Economy Notes

How did the 1973 Oil Crisis affect the United States?

Topic of Study [For H2 History Students]: 
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapter 2: Reasons for problems of the global economy

Learn more about the 1973 oil crisis that hit the USA adversely. [Video by WFAA]

Weaponisation of the ‘Black Gold’: Yom Kippur War
During the 1973 Yom Kippur War, the USA launched Operation ‘Nickel Grass’, which was a strategic operation to send military supplies to its ally, Israel. Between October and November 1963, the USA aided Israel to counter a coordinated attack from Egypt and the Syrian Arab Republic. Armed with Soviet weaponry, these two nations fought back after their defeat in the Six-Day War of 1967.

Neither as well known as the Berlin Airlift nor as large as Desert Storm, Operation Nickel Grass airlifted thousands of tons of materiel and restored the balance of power, helping Israel survive the Soviet-backed assault from Egypt and Syria.

[…] The Egyptian Third Army pretended to conduct exercises until the Israelis began to ignore their machinations. Choosing the most holy day in the Jewish calendar, Yom Kippur, the Day of Atonement, in hopes of catching the Israelis off-guard, the Egyptians attacked across the Suez Canal.

An excerpt taken from “Air Warfare: An International Encyclopedia” by Walter J. Boyne.

Viewed as an act of defiance, the oil-exporting Arab nations that were part of the Organisation of Petroleum Exporting Countries (OPEC) imposed an oil embargo on the United States and other countries that helped Israel (such as Britain).

Four days after President Nixon’s authorisation of US aid to Israel, OPEC announced its decision to raise oil price by 70%, which was over $5 per barrel. Later, a total embargo on shipments of oil to the USA caused the oil price hike to $12 per barrel.

Oil shortage
By the summer of 1973, the USA experienced shortages of refined petroleum products, which were used extensively in activities such as refueling of automobiles. In response to the serious problem, the Emergency Petroleum Allocation Act (EPAA) was passed on 27 November 1973. The EPAA oversaw the control of oil prices and even rationing.

The retail prices of gasoline rose by 40% in November 1973. Long lines of cars were a common sight back then during the gas shortage. Gas stations revised their prices multiple times per day. Unfortunate drivers were met with signs that wrote “Sorry, No Gas Today” in the fall months.

On 17 March 1974, the Arab petrostates announced the end of the oil embargo against the USA. However, the economic repercussions were widespread. The 1973 oil crisis has caused prolonged economic stagnation. The American economy shrank by 2.5% and increased unemployment rate.

The American economy was shedding jobs at the fastest rate since the Great Depression. The deficit was climbing. Inflation had roared to life. Consumers were cutting back on spending. The export sector had slumped because of falling demand for American goods overseas. Factories were closing down. A noxious economic phenomenon known as “stagflation”—high levels of unemployment and inflation—had taken root. If relief did not come soon, feared some economists, then a financial catastrophe on a par with the Great Crash of 1929 could not be ruled out.

An excerpt taken from “The Oil Kings: How the U.S., Iran, and Saudi Arabia Changed the Balance of Power in the Middle East” by Andrew Scott Cooper.

What can we learn from this article?
Consider the following question:
– Assess the view that the 1973 oil crisis devastated the American economy.

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