Oil Crisis of 1973-1974: A Brief History with Documents Essay

During the fall of shah, massive crisis occurred especially in the oil resources, and the United States was not able to foresee such crisis. It is a well known fact that Iran served as one of the top most provider of world’s oil, and even Saudi Arabia proclaimed the initiation of Iran’s oil production. For the record, it is Iran who has been supplying the global oil requirement for at 5 to 7 percent . However, with such dependence on major oil suppliers, such as Iran, the dependency of oil companies, suppliers and consumers was turned down by the shortage and crises that occurred during 1970s. During this moment, the economic stability of oil supplies was shaken by the shortage; hence, different oil companies, suppliers and consumers stock up fearing that the oil costs might increase . During the two consecutive price shocks for oil products in 1970s, primarily, it was caused by the extensive decrease of oil supply in the market. The price increase even surged up to twenty fold compared to previous prices from 1960s . During this year, a considerable market panic occurred, which significantly marked the economic history of oil supplies. Hence, this even was termed as the Oil Crisis of 1973-1974 . Between hoarding and speculative buying, oil prices went up throughout 1979 and into 1980s. Iraq’s plot of invading Iran had significantly altered the oil supply present in the country during that time. lran War kept Iranian oil off the market and caused a 70 percent cutback in Iraqi oil exports as well . In this study, the primary issues to be covered are the events that occurred during the oil crisis of 1973 and 1974 wherein the oil crisis settled in and caused an economic turmoil on oil stocks. The study provides more emphasis on the effects of war in oil crisis, the oil crisis causing the economic panic, and the shortage causing market and civilian anxiety over price hikes of commodities. Discussion As the 1973 – 1974 oil crisis settled in the international world market, oil company profits surged upward during the new crisis and their critics cried foul. Various debates and conducted studies had been initiated during that point with the aims of determining the primary suspect for the cause of oil shortage; however, only contributory factors were obtained, but there were no exact data to pinpoint the cause of the oil crisis . To give an idea in terms of the oil price hike during this period, during 1960s, the barrel of crude oil cost only about US $2 per barrel. However, by the time the oil crisis struck the market in 1973 and 1974, the per barrel cost even reached up to U.  S $10, which is approximately 5 fold increase from 1960s . The reason for this development was that the resource countries claimed the property rights to the crude oil reserves in their soil. Due to the extensive shortage of oil production in the country, oil companies, most especially those supplying international market and small to large scale oil companies, were cut oil from their supply sources. Because of these, the shortage on oil supplies emerged rapidly and greatly and the price hike continued to surge in unexpected amounts. Added in these issues, the oil companies, particularly the internationally scoped firms, had to add the shouldered royalty . Even with the extended period of cooperation with Saudi Arabia, the conflicts in the Middle East, such as the Iran-Iraq war, and British conflict with gulf countries, had all contributed to the decline and shortage of oil production. The oil crisis dramatically changed the United States’ perspective among the countries in the Gulf region. During the manifestation of the crisis, the United States even had to pay an incredibly high toll, more than the European toll. Hence, the United States studied the policies on oil flow and therefore prioritized the determining of the hostile disruption on oil flow, then counters such predicament to solve the crisis on oil shortage . After the issues on oil shortage eased, the number of different companies who have been speculating on the reigning shortage of oil did not fade away. Suspicion among industrial firms and companies still rose and the conspiratorial perspective of oil industries and establishments were all firmly established. In addition, around 1960s, American confidence in business associations and political sectors had been declining due to the perceived incompetencies of these sectors to manage the crisis on oil . The effect of the oil shortage in the countries had caused tremendous economic panic in both public and private sectors. The introduction of new priced oil stocks with a very high price gap from 1960s had caused massive decline in capital, which in the end caused the decline in production, employment and growth. In addition, during the same period, the initiation of oil redistribution of real income in favor of the oil-producing nations took place. Due to the world wide shortage on oil reserves, industrialized nations had to give away export oil products in order to compensate the need of world market; hence, the value of appropriate trade further deteriorated . After the first crisis on 1973 and 1974, another came in on January 1979; however, majority of the public was not able to notice the initial effects of the second crisis. Moreover, it was only in March 1979 when the public began to feel the impacts of the second strike of the crises; although, this one accounts less disturbing compared to the initial strike of shortage . Conclusion In the conclusion of the study, the origin of the oil crisis from 1973 to 1974 was relatively indefinite, yet there were speculations on how the crisis became worst. Some of the issues that contributed to the increasing prices of oil were the Iran-Iraq war, the British arguments with Saudi Arabia, and the shortage of oil supply. The effect of these incidence caused tremendous price hike on all oil commodities, which initiated market panic and hoarding among oil suppliers and small to large scale companies. The second wave of oil shortage followed; however, it was not deemed as heavy as the 1973-1974 incidents.