Though the 1973 Yom Kippur War lasted only 20 days, the outbreak of Arab-Israeli hostilities was followed by two major events, with implications that are still debated today. The first was a politically motivated and largely symbolic initiative by a group of Arab oil producers (the Organization of Arab Petroleum Exporting Countries) to form a selective embargo on oil exports. The second was a collective economic decision by member countries of the Organization of Petroleum Exporting Countries (OPEC) to raise the price of oil.
The threefold-plus increase in the real price of oil per barrel in 1973–1974 inflicted significant economic damage worldwide, while generating intense concerns among policymakers about the ongoing vulnerability of the United States and other energy-dependent societies. Though one would think it important to distinguish between the embargo and the oil-price escalation, a surprising number of accounts that reflect on the oil crisis have conflated them into a single phenomenon. Let’s consider the two events in turn, recognizing the marked differences in their causes and effects. For a more detailed look, see my recently published RFF issue brief.
The embargo primarily targeted the United States and the Netherlands to protest these nations’ presumed support of Israel, though no evidence exists of success in achieving the embargoing nations’ intended objective. All indications suggest instead that an effective rerouting of world oil flows spared the intended targets any major disruption in supply, making the embargo a token gesture, distinctly separate from the damage done by the oil price hike.
Rather, shifting consumption and production patterns, such as increased US oil demand and aggressive inventory buildup by uneasy industrial nations went far to firm up the price spikes of 1973–1974. Moreover, the United States itself reinforced supply stringency through the persistence of its oil price controls, which prevented any new US crude oil production from realizing the sharply higher prices commanded by imported oil. Unsurprisingly, this reduced incentives to expand domestic output, contributing to an “artificial” supply shortfall—a significant factor in the lengthy US gas station lines that remain among the more memorable features of that period. In short, with a variety of identifiable demand and supply factors at work, proof of OPEC-engineered shortages as the prime driver of the 1973–1974 crisis remains questionable at best.
In the end, the price hikes of 1973–1974 (with additional turmoil surrounding the Iranian Revolution of 1979–1980) had the “salutary” effect of helping steer the United States toward becoming a less energy-intensive society—making it less vulnerable to damage from a repeat experience—while also benefiting from freer energy-market conditions as an indirect result. Additionally, these events have promoted an intensified focus on research and development in pursuit of advanced energy systems and technology. But despite these gains, the benefits of moving from acute oil import dependence to the prospective energy independence now in sight should not be overestimated. It is important to remember that there are limits to the ability of the United States to shield itself from global energy turmoil, whatever and wherever its genesis.
