The effects of the embargo were immediate. OPEC forced oil companies to increase payments drastically. The price of oil quadrupled by 1974 from US$3 to nearly US$12 per 42 gallon barrel ($75 per cubic meter), equivalent in 2018 dollars to a price rise from $ to $ per barrel. Saudi Arabia had 25% of the world's oil, but only 4% of the oil used in the United States in 1973 came from the kingdom. However, Saudi Arabia plays an over-sized role within the Arab world. As a Beirut oil consultant noted in 1974: "If Saudi Arabia moves from A to B, then every other oil producer must move at least as far, if not to C." In 1973, about 25% of the oil used in the United States came from Arab countries. The shortage of oil within the United States caused by the Arab oil embargo forced prices to rise, which led price rises globally. Oil producers that had not joined the embargo such as Iran, Venezuela, Libya and Iraq demanded higher prices in Japan and Europe, as an initiative to ship oil to those places instead of the United States, setting off a worldwide inflationary spiral. The only European nations subject to the oil embargo were the Netherlands (because the Dutch Foreign Minister
Max van der Stoel was strongly pro-Israeli) and Portugal (in a show of support for the independence movements in Portugal's African colonies), but the shortage of oil in the United States led to sharp price rises in all of the European nations. Although the embargo did not severely disrupt US oil supplies—since Americans imported more oil from non-embargoed nations such as Iran—the resulting 400% increase in oil prices caused by the embargo damaged the American economy. A number of nations such as Venezuela, Nigeria, Iran and Iraq increased their oil production during the embargo, and sold their oil at a higher price. The leader who pushed the most for higher oil prices was the Shah of Iran, and the Italian historian Giuliano Garavini has argued that the leader most responsible for the West's economic problems during the "oil shock" was not King Faisal, but rather the Shah. Some of the nations that were classified as "friendly" to the Arab viewpoint in regards to the Arab-Israeli dispute such as France and Belgium were the ones who suffered the most from the worldwide inflation caused by the embargo. In March 1974, the crisis eased when the embargo was lifted after negotiations at the Washington Oil Summit, but the effects lingered throughout the 1970s. The dollar price of energy increased again in 1975, amid the weakening competitive position of the dollar in world markets. The Arab oil embargo ended the long period of prosperity in the West that had begun in 1945, throwing the world's economy into the steepest economic contraction since the Great Depression. The "long summer" of prosperity in the post-war years had made possible the "swinging sixties" and the related rise of a rebellious youth culture, as it was easy to be hedonist or in rebellion against traditional values in a time of unprecedented prosperity. Lacey wrote that for people in the West, life suddenly become "slower, darker and chiller" as gasoline was rationed, the lights were turned off in Times Square, the "gas guzzler" automobiles suddenly stopped selling, speed limits became common, and restrictions were placed on weekend driving in a bid to conserve fuel. As the American automobile industry specialized in producing heavy "gas guzzler" vehicles, there was an immediate shift on the part of consumers to the lighter and more fuel-efficient vehicles produced by the Japanese and West German automobile industries, sending the American automobile industry into decline. 1945 to 1973 had been a period of unprecedented prosperity in the West, a "long summer" that many believed would never end. Its abrupt end in 1973, as the oil embargo increased the price of oil by 400% within a matter of days and threw the world's economy into a sharp recession, with unemployment mounting and inflation raging, came as a profound shock. The end of what the French called the
Trente Glorieuses ("Glorious Thirty" [years]) led to widespread pessimism in the West, with the
Financial Times running a famous headline in late 1973 saying, "The Future will be subject to Delay". In an August 1974 address to the General Assembly, Kurt Waldheim, the secretary-general of the United Nations, complained about "the note of helplessness and fatalism creeping into world affairs". The sudden and abrupt end of the "long summer" of prosperity in 1973-1974 played a major role in the pessimistic mood that characterized the culture of the West of the 1970s. In 1975, a report to Congress from the Federal Energy Administration estimated that the embargo of 1973–1974 had caused about 500,000 Americans to lose their jobs, and caused a GNP loss between $10 billion–$20 billion.
Impact on oil exporting nations This price increase had a dramatic effect on oil exporting nations, for the countries of the Middle East who had long been dominated by the industrial powers were seen to have taken control of a vital commodity. The oil-exporting nations began to accumulate vast wealth. Some of the income was dispensed in the form of aid to other underdeveloped nations whose economies had been caught between higher oil prices and lower prices for their own export commodities, amid shrinking Western demand. Much went for arms purchases that exacerbated political tensions, particularly in the Middle East. Saudi Arabia spent over 100 billion dollars in the ensuing decades for helping spread its fundamentalist interpretation of Islam, known as
Wahhabism, throughout the world, via religious charities such as the
al-Haramain Foundation, which often also distributed funds to violent Sunni extremist groups such as Al-Qaeda and the Taliban. The 400% increase in the world oil prices led to extravagant promises being made by the leaders of oil-producing nations. The Shah of Iran told his subjects in a speech in December 1973 that he was launching "Great Civilization" project that would make Iran into a First World nation by the 1990s. President
Carlos Andrés Pérez of Venezuela likewise launched his
Le Gran Venezuela project intended to make Venezuela into a First World nation. President
Yakubu Gowon of Nigeria told his people that henceforward Nigeria's main problem would be "managing abundance". After the oil shock, Nigeria presented itself as the first African nation that would reach First World status. In Lagos, a series of stately
modernist buildings were erected as appropriate for a nation that saw itself as the leader of all Black Africa. Much of the oil wealth in Nigeria
was stolen by corrupt politicians. At least some of Nigeria's new oil wealth went to rebuild the areas devastated by the
civil war of 1967-1970 and to address the complaints that too much of Nigeria's oil wealth went to the federal government in Lagos instead of the people. In Iran, the Shah who was aware by 1974 that he had developed the cancer that was to ultimately kill him in 1980, pushed very strongly for his "Great Civilization" for rapid modernization, not the least because he wanted to see the "Great Civilization" before his death, which explained his grandiose announcements. The new wealth generated by the "oil shock" allowed for Chairman
Houari Boumédiène of Algeria to become a global leader, courted by elites in the First World and the Third World. The oil embargo led a sudden interest in the Palestinian issue. Between 1973 and 1981, Saudi Arabia donated a sum worth $1 billion US dollars to the
Palestine Liberation Organization, which thus had a budget that exceeded that of many Third World nations. On November 8, 1973, Kissinger became the first Secretary of State to meet with a Saudi leader since 1953, as he met King Faisal to ask him to end the embargo. Within two week of the embargo being launched, all of the foreign ministers of the nations of the European Economic Community, now the European Union, met in a conference to issue a statement calling for Israel "to end the territorial occupation which has maintained since the conflict of 1967". On December 11, 1973, the Japanese Foreign Minister
Masayoshi Ōhira flew in to Riyadh to meet King Faisal for "talks on improving bilateral relations". Shortly afterwards, the French foreign minister
Michel Jobert arrived to sign an agreement that provided oil for France for the next twenty years. On January 24, 1974, as the Shah of Iran,
Mohammad Reza Pahlavi, was coming off the ski slopes of
St. Moritz, he was met by the British Chancellor of Exchequer,
Anthony Barber, and the Trade Secretary,
Peter Walker. In a role-reversal, Barber and Walker paid homage to the Shah, who promised them that his nation would sell the United Kingdom 5 million tons of oil in exchange for some £100 million of British goods, to aid his plans to industrialize Iran. Saudi Arabia experienced an upsurge of prosperity and affluence after the oil embargo, whose consequences horrified King Faisal. Faisal, who was devoted to a harsh puritanical strain of Sunni Islam known in the West as Wahhabism, was appalled by the way that his subjects became materialistic, devoted only to conspicuous consumption and greed as they lost interest in Islam. Lacey wrote: "The spiritual dangers of easy affluence distressed him more. His simple gesture of piety and honor seemed to have opened a Pandora's Box that threatened to turn his realm into a parody of all he held dear". In the last two of years of his life, Faisal fell into depression over the way his subjects had been seduced into a consumerist lifestyle, becoming lost in a sense of "melancholia". Faisal's son, Crown Prince Mohammad told Lacey in 1981: "The profligacy, the greed, he felt he could not stem it. He become so bound up in his work, there was almost nothing private of him left". A sign of the changed values was that despite the total ban on alcohol in Saudi Arabia, drinking and drug use become common with the younger members of the House of Saud. James Akins, the American ambassador in Riyadh reported; "the sky over Riyadh is black with vultures with new get-richer-quicker plans under their wings". In 1974, property prices in Riyadh doubled on a weekly basis for the entire year, as the prosperity led to a real estate speculation bubble that was often compared to the Klondike gold rush of 1898–1899. At the Red Sea port of
Jeddah, there were so many ships queuing up laden with cement for the construction boom in Saudi Arabia, that construction contractors hired helicopters to fly the cement in, twenty bags per flight. A number of families engaged in the Saudi construction industry such as the Juffali, Alireza, al-Khasshoggi and the bin Laden families all became very wealthy as a result of the construction boom. The period after the oil shock of 1973–1974 is still fondly remembered in Saudi Arabia as the "age of abundance", where nearly everyone had a significant increase in their standard of living. The wealth and corruption generated by the oil shock led to a fundamentalist backlash in Saudi Arabia. On 20 November 1979, Islam's holiest shrine, the Grand Mosque of Mecca,
was seized by a group who proclaimed themselves to be the followers of the Mahdi, a messianic figure said to appear at the dawn of every Muslim century to strike down the enemies of Islam. The leader of the uprising,
Juhayman al-Otaybi, read out a list of grievances, as he accused the House of Saud of being corrupt and degenerate, listing by name a number of Saudi princes who were engaged in dubious business dealings and/or who drank alcohol. The Saudi Army recaptured the Grand Mosque, and the surviving "renegades", as the rebels were labelled, were executed. Likewise, the perception that most of the wealth being generated by the now higher price of oil was being stolen by a corrupt Shah, along with the unfulfilled promises of the "Great Civilization" project, played a major role in causing the Iranian Revolution that toppled the Shah, and led to the establishment of the Islamic Republic of Iran in February 1979. In Algeria, the "oil shock" led to the establishment of a welfare state where none had existed previously. The lower oil prices of the 1980s along with cutbacks and the belief that the FLN regime was corrupt helped cause the
riots of October 1988 against the FLN regime, that killed at least 500 people. The riots were largely caused by the fact that the low oil prices had forced the Algerian state to end many of its more generous social policies between 1986 and 1988, leading to an unemployment rate of 30% by 1988, along with the knowledge that the FLN regime had stolen millions. In the aftermath of the October riots, President Chadli Bendjedid began a transition to democracy. The first free elections in Algeria in January 1992 were won by the Islamist FIS, which led to a military coup and an outbreak of a
civil war that killed hundreds of thousands of Algerians. OPEC-member states raised the prospect of nationalization of oil company holdings. Most notably, Saudi Arabia nationalized
Aramco in 1980 under the leadership of Saudi oil minister
Ahmed Zaki Yamani. As other OPEC nations followed suit, the cartel's income soared. Saudi Arabia undertook a series of ambitious five-year development plans. The biggest began in 1980, funded at $250 billion. Other cartel members also undertook major economic development programs.
Oil weapon Control of oil became known as the "oil weapon". It came in the form of an embargo and production cutbacks from the Arab states. The weapon was aimed at the United States, Great Britain, Canada, Japan and the Netherlands. These target governments perceived that the intent was to push them towards a more pro-Arab position. Production was eventually cut by 25%. However, the affected countries did not undertake dramatic policy changes. The risk that the Middle East could become another superpower confrontation with the USSR was of more concern to Washington than oil. Further, interest groups and government agencies more worried about energy were no match for Kissinger's dominance.
Impact on United States " during the Oil Crisis In the US production, distribution and price disruptions "have been held responsible for recessions, periods of excessive inflation, reduced productivity, and lower economic growth." Some researchers regard the 1973 "oil price shock" and the accompanying
1973–74 stock market crash as the first discrete event since the
Great Depression to have a persistent effect on the US economy. The embargo had a negative influence on the US economy, causing immediate demands to address the threats to US energy security. On an international level, the price increases changed competitive positions in many industries, such as automobiles. Macroeconomic problems consisted of both inflationary and deflationary impacts. The embargo left oil companies searching for new ways to increase oil supplies, even in rugged terrain such as the Arctic. Finding oil and developing new fields usually required five to 10 years before significant production. The average US retail price of a gallon of regular
gasoline rose 43% from 38.5¢ in May 1973 to 55.1¢ in June 1974. State governments asked citizens not to put up Christmas lights. Oregon banned Christmas and commercial lighting altogether. Politicians called for a national gasoline rationing program. Nixon asked gasoline retailers to voluntarily not sell gasoline on Saturday nights or Sundays. 90% of gas station owners complied, which produced long lines of motorists wanting to fill up their cars while they still could. The "oil shock" provided considerable impetus to the American nuclear industry as a way to achieve "energy independence" from the Middle East. On 7 November 1973, Nixon in an address to Congress called for Project Independence to make the United States self-sufficient in energy by 1980, which called for a massive investment in the nuclear industry. Nixon envisioned nuclear energy as more economical, and was encouraged by the enthusiasm of many officials who saw nuclear energy as the technology of the future. By the late 1960s, a lively environmentalist movement had emerged in the United States, and the Project Independence nuclear program was the subject of much debate in both the media and Congress. The ensuing debates revealed that many of the claims made for nuclear power underestimated the true costs of nuclear reactors. Equally problematic was where to safety store the spent nuclear rods that emitted a toxic level of radioactivity for centuries afterward, in a cost-effective manner. The issue of the spent nuclear rods was especially difficult because of
NIMBYism, where communities proved unwilling to accept a storage place for the inevitable by-product of nuclear power, the spent nuclear rods, with the demand that the government find some other community to store the rods. Many of the nuclear reactors ordered in 1973 were cancelled due to cost overruns, while over 100 nuclear plants were shut down as uneconomical over the next 10 years. Unlike nations that tried to use nuclear power as a way for energy independence such as France and Sweden, the United States had substantial reserves of its own oil, which weakened the case for nuclear power in the ensuring debates. By 1989, only 18% of American energy came from nuclear power plants, which was a fraction of what Project Independence had envisioned in 1973. The oil shock led to anti-Arab feelings becoming common. Cartoons published in American newspapers during the oil shock depicted Arabs as disgusting, ugly, obese, corrupt and greedy. In the cartoons, the long hooked Semitic
noses that had traditionally been featured in anti-Jewish cartoons were applied to the Arab sheiks as a way to illustrate their supposed greed. American public opinion did not see the use of the "oil weapon" as due to politics, and tended to explain the embargo as only due to the excessive greed of King Faisal and the other Arab leaders, hence the use of the hooked Semitic nose in the cartoons as a sort of shorthand for insatiable greed.
Impact of the Soviet Union The Soviet Union was not a beneficiary of the oil crisis. The crisis prompted the USSR to raise energy prices within the
Council on Mutual Economic Assistance (CMEA). The inability of the USSR to meet energy demand from its allies led those "East European governments to purchase oil from Middle Eastern countries at increasing world market prices, crippling their balance of payments and accentuating their other economic shortcomings."
Impact on Western Europe The embargo was not uniform across Western Europe. Of the nine members of the
European Economic Community (EEC), the Netherlands faced a complete embargo. By contrast Britain and France received almost uninterrupted supplies. That was their reward for refusing to allow the US to use their airfields and stopping arms and supplies to both the Arabs and the Israelis. The other six EEC nations faced partial cutbacks. The UK had traditionally been an ally of Israel, and
Harold Wilson's government supported the Israelis during the Six-Day War. His successor,
Ted Heath, reversed this policy in 1970, calling for Israel to withdraw to its pre-1967 borders. In 1969, France devalued the franc. The devalued franc made imports more expensive for French consumers, which encouraged them to buy French products, while making French products cheaper abroad. France was entirely dependent upon imported oil, through French companies continued to lease the oil concessions in Algeria until 1971. The low price of oil internationally compensated to a certain extent for the higher price of oil caused by the devaluation. The devalued franc ensured that the dramatic price increases caused by the oil shock hit the French economy especially hard in 1973. The UK, Germany, Italy, Switzerland and Norway banned flying, driving and boating on Sundays. Sweden rationed gasoline and heating oil. The Netherlands imposed prison sentences for those who used more than their ration of electricity. The EEC was unable to achieve a common policy during the first month of the embargo. It issued a statement on November 6, after the embargo and price rises had begun. It was widely viewed as pro-Arab, supporting the Franco-British line on the war. OPEC duly lifted its embargo from all EEC members. The other European states did not rally in defense of the Dutch who were left to fend for themselves and instead reached bilateral deals with Saudi Arabia, Iraq and Iran. Faced with a recession, there was a tendency within the EEC nations to turn inwards away from European integration. The price rises had a much greater impact in Europe than the embargo. The crisis retarded the movement towards European economic integration which had been gathering pace ever since the EEC, now the European Union, had been founded in 1957. In 1973, the German historian Jens-Uwe Wunderlich wrote that attempts to finish off the European common market came to a "complete standstill" in 1973 and it was not until 1977 that movement towards creating the common market resumed. As the EEC's customs union had made it impossible to raise tariffs against other EEC members, there was a tendency, especially pronounced in France and the United Kingdom, for governments to subside
national champions with selected corporations receiving grants and tax breaks as a response to the crisis. In particular, the oil shock increased the appeal of nuclear energy as a way to achieve energy independence from the turbulent Middle East. Starting in March 1974 with the "Energy Plan" introduced by the premier
Pierre Messmer, the French state made a massive investment in nuclear energy. By the 1990s,
80% of all of France's energy came from nuclear plants.
Impact on United Kingdom The North Sea oil fields, which were discovered in 1969, did not start to be exploited until 1975, making the United Kingdom entirely dependent upon imported oil in 1973. The way that world oil prices quadrupled in late 1973 had a very adverse impact on the British economy,. In a series of speeches in December 1973, the Prime Minister
Edward Heath warned that because of the oil shock that the British economy was going into recession and the British people should expect economic austerity. The need to avoid importing the now more expensive oil to help manage the balance-of-payments led the Heath government to turn towards coal, which Britain was self-sufficient in, as a substitute source of energy, which gave the coal miners union immense leverage over the government to press for higher wages for the coal miners. Heath offered the coal miners a 7% wage increase, which was rejected as insufficient by the miners who went on strike. Through not subjected to the embargo, the UK faced an energy crisis of its own—a series of strikes by coal miners and railroad workers over the winter of 1973–74 became a major factor in the defeat of Heath's Conservative government in the
February 1974 general elections. The new Labour government told the British to heat only one room in their houses over the winter. The Labour government of Harold Wilson settled the strike by giving the coal miners a 35% pay increase.
Impact on Japan Japan was hard hit, since it imported 90% of its oil from the Middle East. It had a stockpile good for 55 days, and another 20-day supply was en route. Facing its most serious crisis since 1945, the government ordered a 10% cut in the consumption of industrial oil and electricity. In December 1973, it ordered an immediate 20% cut in oil use and electric power to Japan's major industries, and cutbacks in leisure automobile usage. Economist predicted the growth rate would plunge from 5% annually, down to zero or even negative territory. Inflation hit 9%. Seeking to take advantage of the crisis, Japanese business called on the government to relax its controls on air pollution and water pollution. The government refused. Moscow tried to take advantage by promising energy assistance if Japan renounced its claim to the
Kurile Islands. Tokyo refused. Instead it made $3.3 billion of dollars in loans to the Arab states and called on Israel to step back. Japan's defensive strategy was explained to Kissinger when he met with top leaders in Tokyo in November 1973. In the long run Japan never wavered in its determination to maintain very strong close ties to the United States, while in self-defense briefly providing the Arab powers with the rhetoric they demanded in return for resuming oil shipments in early 1974. To assure future oil flows, Japan added suppliers outside of the Middle East, invested in nuclear power, imposed conservation measures, and provided funding for Arab governments and the Palestinians. The crisis was a major factor in the long-run shift of Japan's economy away from oil-intensive industries. Investment shifted to electronics. Japanese auto makers benefited from the crisis. The jump in gasoline prices helped their small, fuel-efficient models to gain market share from the "gas-guzzling" Detroit competition. This triggered a drop in US sales of American cars that lasted into the 1980s.
Impact on India The oil crisis contributed to the poor state of the Indian economy and played a role in Indira Gandhi's decision to impose
The Emergency, a dictatorship. The state led a push for coal as an energy source, even though there were reservations about its adverse environmental effects. In December 1973, Vietcong sappers attacked and destroyed the petroleum depot of Nha Be, further depleting fuel sources. By the summer of 1974, the US embassy in Saigon reported that morale in the ARVN (Army of the Republic of Vietnam) had fallen to dangerously low levels and it was uncertain how much more longer South Vietnam would last. As inflation eroded the value of the South Vietnamese
đồng, it became common by the summer of 1974 to see ARVN soldiers and their families begging in the streets for food. In December 1974, the North Vietnamese PAVN (People's Army of Vietnam) launched an offensive in the Central Highlands that was far more successful than expected, due to the ARVN's low morale and weak resistance. On March 1, 1975, the PAVN launched a major offensive that quickly overran the Central Highlands. By March 25, 1975, Hue had fallen. Following their victory in the Central Highlands, the North Vietnamese launched the "Ho Chi Minh Campaign" that captured Saigon on April 30, 1975.
Impact on southern Africa Three of the nations targeted by the embargo were located in southern Africa or had colonies there. Portugal which ruled the colonies of Angola, Portuguese Guiana (modern Guinea-Bissau), and Portuguese East Africa (modern Mozambique) had fighting colonial wars in all of its African colonies since the 1960s with Angola being the first to rise up in 1961. Angola is rich in oil, which protected Portugal from the worse of the embargo. But the economic stability of the
Estado Novo regime was damaged by the worldwide inflation, which help cause the Carnation Revolution which toppled the
Estado Novo regime in April 1974 and led to the restoration of democracy. Portugal granted independence to all of its colonies except for Macau in 1975. The British historian Rob Skinner wrote the embargo had a "significant impact" on the South African economy. The inflationary rise in commodity prices increased the input costs of South African manufacturing, making South African manufactured goods uncompetitive on the world market. The rise in the price of gold as a hedge against inflation (South Africa has the world's largest gold mines) caused the
rand to increase in value, which caused further problems for South African manufacturing. The strategy pursued by the National Party government since 1948 of sponsoring the industrialization of South Africa was derailed by the oil shock, with what Skinner described as "important social and political consequences" for the
apartheid regime. The
Soweto uprising of 1976 was at least in part caused by anger at the high unemployment rate in the black South African community. Even worse hit than South Africa was Rhodesia (modern Zimbabwe), where oil was already expensive as the
white supremacist government of Rhodesia had been under United Nations sanctions since 1965, and thus the smugglers who sold Rhodesia oil charged a premium for their services. The premium charged by the "sanctions busters" such as Iran increased after the embargo, which threw the Rhodesian economy into recession. Despite the United Nations sanctions, Rhodesia was a major exporter of chrome, steel and tobacco with the United States exempting "strategical" Rhodesian products such as chrome from the sanctions. The global recession of 1973–1975 proved more effective than the United Nations in ending the global demand for Rhodesian products, which made the Rhodesian recession especially severe. Unlike South Africa, which had a sizable and long-standing white population, the white population of Rhodesia was much smaller and more recent. Rhodesia depended considerably more than South Africa on white immigration to provide enough soldiers for its army, while most of the Rhodesian whites had only arrived in the 1950s and did not have very deep roots in the country. The white flight caused by the recession put the Rhodesian Army at a major disadvantage in its war against the black guerrillas. The war cost the Rhodesian government one million Rhodesian dollars per day by 1975, and the costs of the war threatened to bankrupt Rhodesia. In 1979, Rhodesia signed the Lancaster House Agreement, which led to Black majority rule in 1980.
Price controls and rationing United States Price controls exacerbated the crisis in the US. The system limited the price of "old oil", that which had already been discovered, while allowing newly discovered oil to be sold at a higher price, to encourage investment. As a result, old oil was withdrawn from the market, creating greater scarcity. The rule also discouraged development of
alternative energies. The rule had been intended to promote
oil exploration. Scarcity was addressed by rationing, as in many countries. Motorists faced long lines at gas stations beginning in summer 1972 and increasing by summer 1973. A sign of the change caused by the crisis was that in 1974 the
Exxon oil company replaced the General Motors corporation to be the largest corporation in the world, as measured by gross sales revenues. In 1973, Nixon named
William E. Simon as the first Administrator of the Federal Energy Office, a short-term organization created to coordinate the response to the embargo. Simon allocated states the same amount of domestic oil for 1974 that each had consumed in 1972, which worked for states whose populations were not increasing. In other states, lines at gasoline stations were common. The
American Automobile Association reported that in the last week of February 1974, 20% of American gasoline stations had no fuel.
Odd–even rationing allowed vehicles with
license plates having an odd number as the last digit, or a
vanity license plate, to buy gas only on odd-numbered days of the month. Others could buy only on even-numbered days. In some states, a three-color flag system was used to denote gasoline availability at service stations—green for unrationed availability, yellow for restricted/rationed sales, and red for out of stock. in 1974, but not used Rationing led to violent incidents, when truck drivers chose to strike for two days in December 1973 over the limited supplies that Simon had allocated for their industry. In
Pennsylvania and
Ohio, non-striking truckers were shot at by striking truckers. In
Arkansas, trucks of non-strikers were attacked with bombs. America had controlled the price of natural gas since the 1950s. With the inflation of the 1970s, the price was too low to encourage the search for new reserves. America's natural gas reserves dwindled from 237 trillion in 1974 to 203 trillion in 1978. The price controls were not changed, despite president
Gerald Ford's repeated requests to Congress.
Conservation and reduction in demand United States To help reduce consumption, in 1974 a
national maximum speed limit of 55 mph (89 km/h) was imposed through the
Emergency Highway Energy Conservation Act. Development of the
Strategic Petroleum Reserve began in 1975, and in 1977 the cabinet-level
Department of Energy was created, followed by the
National Energy Act of 1978. In November 1995, President
Bill Clinton signed the
National Highway Designation Act, ending the federal 55 mph speed limit, which allowed states to restore their prior maximum speed limit. Year-round daylight saving time was implemented from January 6, 1974, to October 27, 1975, with a break between October 27, 1974, and February 23, 1975, when the country observed standard time. Parents complained that it forced many children to travel to school before sunrise. The prior rules were restored in 1976. , Washington, was turned into a
revival hall. The crisis prompted a call to conserve energy, most notably a campaign by the
Advertising Council using the tagline "Don't Be Fuelish". Many newspapers carried advertisements featuring cut-outs that could be attached to light switches, reading "Last Out, Lights Out: Don't Be Fuelish". Although not regulated by the new legislation, auto racing groups voluntarily began conserving. In 1974,
NASCAR reduced all race distances by 10%; the
24 Hours of Daytona and the
12 Hours of Sebring race were cancelled. In 1975, the
Energy Policy and Conservation Act was passed, leading to the creation of the
Corporate Average Fuel Economy (CAFE) standards that required improved fuel economy for cars and light trucks. In 1976, Congress created the
Weatherization Assistance Program to help low-income homeowners and renters reduce their demand for heating and cooling through better
insulation. By 1980, domestic luxury cars with a
wheelbase and gross weights averaging 4,500 pounds (2,041 kg) were no longer made. The automakers had begun phasing out the traditional front engine/rear-wheel drive layout in compact cars in favor of lighter front engine/front-wheel drive designs. A higher percentage of cars offered more efficient four-cylinder engines. Domestic auto makers also began offering more fuel efficient diesel powered passenger cars as well.
Alternative energy sources in a
fireplace for heat. An October 1973 newspaper headline before her tells of the community's lack of heating oil. The energy crisis led to greater interest in renewable energy, nuclear power and domestic fossil fuels. In 2013,
Peter Grossman opined that American energy policies after the crisis became and remained dominated by crisis-mentality thinking, promoting expensive quick fixes and single-shot solutions that ignore market and technology realities. He wrote that instead of providing stable rules that support basic research while leaving plenty of scope for entrepreneurship and innovation, Congresses and presidents repeatedly backed policies which promised politically expedient solutions whose true prospects were doubtful. The Brazilian government implemented its
Proálcool (pro-alcohol) project in 1975 that mixed
ethanol with gasoline for automotive fuel. Israel was one of the few countries unaffected by the embargo, since it could extract sufficient oil from the Sinai. But to supplement Israel's over-taxed power grid,
Harry Zvi Tabor, the father of
Israel's solar industry, developed the prototype for a
solar water heater now used in over 90% of Israeli homes.
Macroeconomy Western central banks decided to sharply cut interest rates to encourage growth, deciding that inflation was a secondary concern. Although this was the orthodox macroeconomic prescription at the time, the resulting
stagflation surprised economists and central bankers. The policy is now considered by some to have deepened and lengthened the adverse effects of the embargo. Recent research claims that in the period after 1985 the economy became more resilient to energy price increases. The price shock created large current account deficits in oil-importing economies. A
petrodollar recycling mechanism was created, through which OPEC surplus funds were channeled through the capital markets to the West to finance the current account deficits. The functioning of this mechanism required the relaxation of
capital controls in oil-importing economies. It marked the beginning of an exponential growth of Western
capital markets. In the United States in 1974, seven of the 15 top Fortune 500 companies were oil companies, falling to four in 2014.
International relations The crisis had a major impact on international relations and created a rift within NATO. Some European nations and Japan sought to disassociate themselves from
United States foreign policy in the Middle East to avoid being targeted by the boycott. Arab oil producers linked any future policy changes to peace between the belligerents. To address this, the Nixon Administration began multilateral negotiations with the combatants. They arranged for Israel to pull back from the
Sinai Peninsula and the
Golan Heights. By January 18, 1974,
US Secretary of State Henry Kissinger had negotiated an Israeli troop withdrawal from parts of the Sinai Peninsula. The promise of a negotiated settlement between Israel and Syria was enough to convince Arab oil producers to lift the embargo in March 1974. Although no explicit plan was mentioned, a conversation between
US Secretary of Defense James Schlesinger and
British Ambassador to the United States Lord Cromer revealed Schlesinger had told him that "it was no longer obvious to him that the US could not use force." British Prime Minister
Edward Heath was so worried by this prospect that he ordered a British intelligence estimate of US intentions, which concluded that America "might consider it could not tolerate a situation in which the US and its allies were at the mercy of a small group of unreasonable countries", and that they would prefer a rapid operation to seize oilfields in Saudi Arabia and Kuwait, and possibly Abu Dhabi if military action was decided upon. Although the Soviet response to such an act would likely not involve force, intelligence warned "the American occupation would need to last 10 years as the West developed alternative energy sources, and would result in the 'total alienation' of the Arabs and much of the rest of the Third World."
NATO Western Europe began switching from pro-Israel to more pro-Arab policies. This change strained the Western alliance. The US, which imported only 12% of its oil from the Middle East (compared with 80% for the Europeans and over 90% for Japan), remained staunchly committed to Israel. The percentage of US oil which comes from the nations bordering the Persian Gulf remained steady over the decades, with a figure of a little more than 10% in 2008. With the embargo in place, many developed countries altered their policies regarding the Arab-Israeli conflict. These included the UK, which refused to allow the United States to use British bases and
Cyprus to airlift resupplies to Israel, along with the rest of the members of the
European Community. Canada shifted towards a more pro-Arab position after displeasure was expressed towards Canada's mostly neutral position. "On the other hand, after the embargo the Canadian government moved quickly indeed toward the Arab position, despite its low dependence on Middle Eastern oil".
Japan Although lacking historical connections to the Middle East, Japan was the country most dependent on Arab oil. 71% of its imported oil came from the Middle East in 1970. On November 7, 1973, the Saudi and Kuwaiti governments declared Japan a "nonfriendly" country, to encourage it to change its noninvolvement policy. It received a 5% production cut in December, causing a panic. On November 22, Japan issued a statement "asserting that Israel should withdraw from all of the 1967 territories, advocating Palestinian self-determination, and threatening to reconsider its policy toward Israel if Israel refused to accept these preconditions". By December 25, Japan was considered an Arab-friendly state.
Nonaligned nations The oil embargo was announced roughly one month after a
right-wing military coup in
Chile led by General
Augusto Pinochet toppled socialist president
Salvador Allende on September 11, 1973. The response of the Nixon administration was to propose doubling arms sales. As a consequence, an opposing Latin American bloc was organized and financed in part by Venezuelan oil revenues, which quadrupled between 1970 and 1975. A year after the start of the embargo, the UN's nonaligned bloc passed a resolution demanding the creation of a "
New International Economic Order" under which nations within the global South would receive a greater share of benefits derived from the exploitation of southern resources and greater control over their self-development.
Arab states Prior to the embargo, the geo-political competition between the Soviet Union and the United States, in combination with low oil prices that hindered the necessity and feasibility of alternative energy sources, presented the Arab States with financial security, moderate economic growth, and disproportionate international bargaining power. The oil shock disrupted the status quo relationships between Arab countries and the US and USSR. At the time, Egypt, Syria and Iraq were allied with the USSR. Saudi Arabia, Turkey and Iran, plus Israel, aligned with the US. Vacillations in alignment often resulted in greater support from the respective superpowers. When
Anwar Sadat became president of Egypt in 1970, he dismissed Soviet specialists in Egypt and reoriented towards the US. Concerns over economic domination from increased Soviet oil production turned into fears of military aggression after the
1979 Soviet invasion of Afghanistan, a major turning point in Cold War geopolitics. Persian Gulf states turned toward the US for security guarantees against Soviet military action, coming at a time marked by increased American weapons sales, technology, and outright military presence to various US-allied nations. Saudi Arabia and Iran became increasingly dependent on American security assurances to manage both external and internal threats, including increased military competition between them over increased oil revenues. Both states were competing for preeminence in the
Persian Gulf, and using increased revenues to fund expanded militaries. By 1979, Saudi arms purchases from the US were five times larger than Israel's. In the wake of the 1979
Iranian Revolution the Saudis were forced to deal with the prospect of internal destabilization via the radicalism of
Islamism, a reality which was quickly revealed in the
Grand Mosque seizure in Mecca by
Wahhabi extremists in November 1979, and a Shiite Muslim revolt in the oil rich
Al-Hasa region of Saudi Arabia in December of the same year, which was known as the
1979 Qatif Uprising.
Saudi Arabia is a near-absolute monarchy, an Arabic speaking country, and has a
Sunni Muslim majority, while Persian speaking
Iran since 1979 is an Islamist theocracy with a
Shiite Muslim majority, which explains the current hostility between Saudi Arabia and Iran. Before the Iranian Revolution the usually
pro-American,
anti-communist and largely Sunni Muslim Saudi Arabians were somewhat wary of the
pro-Soviet relations held by the
Ba'athist socialist and relatively secularist republican dictatorship of Iraq, the latter of which is a majority Shiite Muslim Arab nation which was ruled by a Sunni Muslim Arab minority before the
Iraq War, and how that affected the Saudis' own
relations with the Iraqis, because these two oil-rich Arab nations share a long land border with each other.
Automobile industry The oil crisis sent a signal to the auto industry globally, which changed many aspects of production and usage for decades to come.
Western Europe After World War II, most West European countries taxed motor fuel to limit imports, and as a result most cars made in Europe were smaller and more economical than their American counterparts. By the late 1960s, increasing incomes supported rising car sizes. The oil crisis pushed West European car buyers away from larger, less economical cars. The most notable result of this transition was the rise in popularity of compact
hatchbacks. The only notable small hatchbacks built in Western Europe before the oil crisis were the
Peugeot 104,
Renault 5 and
Fiat 127. By the end of the decade, the market had expanded with the introduction of the
Ford Fiesta,
Opel Kadett (sold as the
Vauxhall Astra in Great Britain),
Chrysler Sunbeam and
Citroën Visa. Buyers looking for larger cars were increasingly drawn to medium-sized hatchbacks. Virtually unknown in Europe in 1973, by the end of the decade they were gradually replacing
sedans as the mainstay of this sector. Between 1973 and 1980, medium-sized hatchbacks were launched across Europe: the
Chrysler/Simca Horizon,
Fiat Ritmo (Strada in the UK),
Ford Escort MK3,
Renault 14,
Volvo 340 / 360,
Opel Kadett, and
Volkswagen Golf. These cars were considerably more economical than the traditional
saloons they were replacing, and attracted buyers who traditionally bought larger vehicles. Some 15 years after the oil crisis, hatchbacks dominated most European small and medium car markets, and had gained a substantial share of the large family car market.
United States Before the energy crisis, large, heavy, and powerful cars were popular. By 1971, the standard engine in a
Chevrolet Caprice was a 400-cubic inch (6.5 liter) V8. The wheelbase of this car was , and
Motor Trend 1972 road test of the similar
Chevrolet Impala achieved no more than 15 highway miles per gallon. In the 15 years prior to the 1973 oil crisis, gasoline prices in the US had lagged well behind inflation. The crisis reduced the demand for large cars. Japanese imports, primarily the
Toyota Corona, the
Toyota Corolla, the
Datsun B210, the
Datsun 510, the
Honda Civic, the
Mitsubishi Galant (a captive import from Chrysler sold as the
Dodge Colt), the
Subaru DL, and later the
Honda Accord all had
four cylinder engines that were more fuel efficient than the typical American
V8 and
six cylinder engines. Japanese imports became mass-market leaders with
unibody construction and front-wheel drive, which became
de facto standards. From Europe, the
Volkswagen Beetle, the
Volkswagen Fastback, the
Renault 8, the
Renault LeCar, and the
Fiat Brava were successful. Detroit responded with the
Ford Pinto, the
Ford Maverick, the
Chevrolet Vega, the
Chevrolet Nova, the
Plymouth Valiant and the
Plymouth Volaré. American Motors sold its homegrown
Gremlin,
Hornet and
Pacer models. Some buyers lamented the small size of the first Japanese compacts, and both Toyota and Nissan (then known as Datsun) introduced larger cars such as the
Toyota Corona Mark II, the
Toyota Cressida, the
Mazda 616 and
Datsun 810, which added passenger space and amenities such as air conditioning, power steering, AM-FM radios, and even power windows and central locking without increasing the price of the vehicle. A decade after the 1973 oil crisis, Honda, Toyota and Nissan, affected by the 1981
voluntary export restraints, opened US assembly plants and established their luxury divisions (Acura, Lexus and Infiniti, respectively) to distinguish themselves from their mass-market brands. Compact trucks were introduced, such as the
Toyota Hilux and the
Datsun Truck, followed by the
Mazda Truck (sold as the
Ford Courier), and the Isuzu-built
Chevrolet LUV. Mitsubishi rebranded its
Forte as the
Dodge D-50 a few years after the oil crisis. Mazda, Mitsubishi and Isuzu had joint partnerships with Ford, Chrysler, and GM, respectively. Later, the American makers introduced their domestic replacements (Ford Ranger, Dodge Dakota and the Chevrolet S10/GMC S-15), ending their
captive import policy. An increase in imported cars into North America forced General Motors, Ford and Chrysler to introduce smaller and fuel-efficient models for domestic sales. The
Dodge Omni /
Plymouth Horizon from Chrysler, the
Ford Fiesta and the
Chevrolet Chevette all had four-cylinder engines and room for at least four passengers by the late 1970s. By 1985, the average American vehicle moved 17.4 miles per gallon, compared to 13.5 in 1970. The improvements stayed, even though the price of a barrel of oil remained constant at $12 from 1974 to 1979. Sales of large sedans for most makes, except
Chrysler products, recovered within two model years of the 1973 crisis. The
Cadillac DeVille and
Fleetwood,
Buick Electra,
Oldsmobile 98,
Lincoln Continental,
Mercury Marquis, and various other luxury oriented sedans became popular again in the mid-1970s. The only full-size models that did not recover were lower price models such as the
Chevrolet Bel Air and
Ford Galaxie 500. Slightly smaller models such as the
Oldsmobile Cutlass,
Chevrolet Monte Carlo,
Ford Thunderbird and various others sold well. Economical imports succeeded alongside heavy, expensive vehicles. In 1976, Toyota sold 346,920 cars (average weight around 2,100 lbs), while Cadillac sold 309,139 cars (average weight around 5,000 lbs). Federal safety standards, such as NHTSA Federal Motor Vehicle Safety Standard 215 (pertaining to safety bumpers), and compacts like the 1974 Mustang I were a prelude to the DOT "downsize" revision of vehicle categories. By 1977, GM's full-sized cars reflected the crisis. By 1979, virtually all "full-size" American cars had shrunk, featuring smaller engines and smaller outside dimensions.
Chrysler ended production of their full-sized luxury sedans at the end of the 1981 model year, moving instead to a full
front-wheel drive lineup for 1982, except for the
M-body Dodge Diplomat/
Plymouth Gran Fury and
Chrysler New Yorker Fifth Avenue sedans. ==Consequences==