Line up, single file

 distributorcap NY
In the 1960’s oil was relatively cheap, in abundant supply and flowed freely. The economies of the US, Japan and Western Europe hummed along and rapidly became dependent their drug energy of choice. The Seven Sisters of the petroleum industry — Esso (now ExxonMobil), Royal-Dutch Shell, Anglo-Persian (now BP), Standard Oil of New York (Mobil-merged with Exxon), Standard Oil of California (now Chevron), Gulf, Texaco (merged with Chevron) – all based in the US or Europe, basically controlled production worldwide (including the Middle East) and therefore set the price. Through mid-1973 oil was $3 per barrel, a figure that had varied by only 2% since between 1947 and 1972. The Arab countries were welcoming the money and development as a way to bring their impoverished nations into the 20th century. OPEC was formed in 1960 but was really not a significant factor during the decade.

In August 1971, the monetary gold standard – which pegged the US Dollar to a fixed price of gold ($35/ounce) – was dropped by almost all nations. This meant the US Dollar (and other ‘hard’ currencies) were allowed to float against each other – letting the market set the value. With no fixed rates, more money was now being printed and the value of the US dollar depreciated rapidly after 1971. Since oil was priced only in dollars, this meant OPEC was now receiving less ‘real’ revenue. Those sheikhs were wising up and beginning to become unhappy. There were mumblings of using oil as a weapon.

In late 1973 those emirs were given the impetus they needed to finally change the rules of the game – making them the masters.

Yom Kippur – October 6, 1973 – Egypt, Syria, and Iraq invaded Israel in a surprise attack during the holiest day on the Jewish Calendar. During this Middle East crisis, OPEC and the Arabs realized they held the west by the balls – they were the primary drug supplier to the world’s biggest drug addict. The Shah of Iran (who was an American ally!) said “you buy crude from us, refine it into petrochemicals and other goods and sell it back to us and hundreds of times the price. From now on you will more for oil – let’s say ten times more.” 10 days into the conflict, on October 17, 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) – Algeria, Bahrain, Egypt, Iraq, Kuwait, Libya, Qatar, Saudi Arabia, Syria, Tunisia, UAE – and Iran announced they would cease oil deliveries to countries supporting Israel.

Welcome to the first oil crisis.

Production was cut by 5,000,000 barrels/day within a few days. In addition to the choking off supply, the Arabs immediately raised the price of a barrel of oil to $3.65, a 20% increase. On October 19th, the spigot was turned off to the US, four days later the Netherlands received its embargo notice. Next month it was Portugal and South Africa. A cease fire was declared between Israel and the Arabs on October 26th. But the oil did not resume flowing.

Since the demand for oil remained unchanged, despite the significant cut in supply and dramatic increase in price (oil is an “inelastic commodity”), an economic crisis and recession was set off almost immediately in the US. By early 1974 the price of oil was topping $10 a barrel, and would hit $12 later that year. And this increase rapidly spread throughout the economy.

The balance of power had tipped forever.

The Arab nations began to see an influx of wealth and revenue beyond their wildest dreams. The money aka “petrodollars” was lavished on buying friends, buying big buildings and buying arms. Some of the Arab-based oil companies were nationalized. The Middle East, which was a hotbed of sand, camels and Bedouins — became an oasis of economic development and influence. The transition and transfer of wealth was unprecedent.

Meanwhile back in the US

Gasoline prices rose from 38 cents in Sept 1973 to 55 cents in May 1974. Stock prices plummeted. Commodity prices rose. Businesses shut. Unemployment grew. Inflation went wild. And the most visual aspect of this crisis – long, long, long, long lines for gasoline.

People with even license plates could buy ask on even days, odd on odd days. Red flags meant no gas, yellow flags meant limited gas available. Buses were overcrowded. Schools and offices closed to save on heating oil. Walking became very popular, cities started looking like decent places to live again. The national speed limit was set at 55 miles per hour to reduce consumption. Daylight Savings Time began in January 1974 by governmental decree – forcing kids to go to school in the dark. Fuel-efficient Japanese cars all of a sudden were showing up on the highways. The government threatened to issue rationing coupons for gasoline. President Nixon was in the midst of a political crisis called Watergate. The almighty American economy and society was at a standstill. What a mess. (And we elected Republicans again???)

In March 1974 the embargo was lifted and the crisis subsided. But the financial and emotional damage was done. The US automakers, who were reaping big profits from building big V8 gas guzzlers, were hit hard. Those monstrosities were not very popular with a public adjusting to gasoline prices that increased 50 or more percent. They sat in dealer lots unsold. What Americans demanded were the Japanese compact cars that often averaged over 30 mpg to the US. All of sudden Toyota and Honda were household names as the Japanese made became permanent fixtures in the US vehicle market. Plans were drawn up (but of course barely implemented) to increase mass transit, find new fuel sources and develop renewable energy. Banks cut interest rates to encourage growth, but this allowed inflation to run wild. Many nations, especially those that imported 70-90% of their oil from the Middle East began to take more pro-Arab stances.

The sheikhs were laughing all the way to the bank.

And what did we learn – ABSOLUTELY NOTHING. Six short years later, we were doing this all over again.


~ by distributorcap on June 12, 2008.

18 Responses to “Line up, single file”

  1. I remember sitting in lines at the gas pump back in ’79. I thought the U.S. would shift to smaller cars after that. How naive I was.
    Incidentally, does any of that oil money trickle down to the ordinary people in those Arab countries? Oops, I’m being naive again.

  2. Hi,
    you have stated –

    Since oil was priced only in dollars,

    could you elaborate on how it became the only petrocurrency?

    Will it prove the age old saying of “as you sow…”?

  3. Sadly, so many who have the national stage get stuck advocating for one type of solution be it electric cars, nuclear energy, cafe standards, pick one. The solution needs to be multi-layered and it needs to include renewable and safer energies, too, like solar, wind, etc.

    And still there is no call for the release of records of Cheney’s energy meetings. I think they might be very telling.

  4. Brilliantly done – as usual. For reasons of its own greed – like the ties between the Bushes and the Saudis – and the corporatocracy, we stayed with oil and we are now scaaaaa-rrrroooooood!

  5. Boy, you made me get all misty for the days of my childhood, asking my mommy what an “odd” day meant. How quickly we forget.

  6. ahh yes I remember the days of big cars and 50 cent a gallon gas. Don’t think we’ll see that ever again. Nice recap of history you did here.

  7. Excellent bit o’history there DCap. I was 12 when that all went down, and I remember that odd/even thing totally scerwing up a driving trip to California. There was no way we could afford to fly the whole family, so we had to hopscoth day by day from Denver to L.A. Slept in the car. Everybody hated Nixon right then, kinda just about like Bush now.

  8. It seems pretty obvious the thing to have begun once the US ran out of its own supplies would have been research into alternatives as well as conservation. It wasn’t convenient. Michael Ruppert and James Howard Kunstler have been trying to publicize this for a long time but they aren’t ‘believable’. Unfortunately, the only people looking ahead are the ‘futures’ traders and that’s a big part of the current problem. Crude oil would still be much more expensive than it was by last summer but probably 30-40% less if it weren’t for the speculation of the hedge funds.

    Dcup is correct that we need a spectrum of solutions being put in place starting yesterday or at least this afternoon. There won’t be a single solution unless there’s some future breakthrough we can’t yet foresee. Meanwhile, we’re so damn selfish we’d rather let the rest of the world starve than not exercise our right to drive the three blocks to the Quickie Mart. God help us.

  9. You tell our history well DCap. I remember this time in history, just being out of highschool. It was something I thought we would never have to go through again. I saw a guy shot over cutting in on a gas line at a local service station for christs sake.

    Did you hear that ExxonMobil is selling off ALL their gas stations? That way they can rip those guys off too.

  10. i think it ironic that Dubya’s big insight after 7 years of honking on the Saudi bobo is the same thing that Jimmy Carter said in the 70s…… oil dependency

  11. Great summation.

    I suppose there are a lot of folks who need the history lesson.

  12. for what to have my gas stolen lol

  13. Sums it all nicely.

    There were significant improvements made in energy efficiency as a result. I can’t find the numbers for the US but here’s a graph for Japan. But once oil became “cheap” again, interest in efficiency for industry and vehicles died out for the most part.

  14. So Americans are once again paying the price for their gluttony. Who’da thunk it. America is all about greed and that always bites you in the butt. It will never change…because this country was founded on it.

  15. I just wanna know when we can start putting soylent green in our tanks.

  16. I would like to sincerely thank you for writing this article, I had a report to write on the 1973 Energy crisis and this was one of my major sources I used. You made my life a whole lot easier, and so thanks again for taking the time to write such a fabulous piece.

    Also, it wasn’t boring to read like most of my other sources 🙂

  17. I would still say that is happening today because people like the gas guzzler vehicles like the gmc yukon ford expedition and dodge durango that’s why the economy is what it is because of the taxes we get for gasoline the demand is too high but you know what even if gas goes up 7 dollars a gallon people will continue to buy big vehicles so what have we learned from this crisis nothing because we still have the cars that we had 35 yeras ago making 9mpg or 12mpg on the city and 19 on the highway and that’s why the imports like the toyota corolla honda civic nissan sentra and mitisubishi lancer will always beat the 4 cylinders domestic cars and the camry accord altima and sonata will beat the fusion malibu and charger because they are more dependable and reliable cars and you know what ppl will not understand this message regardless of the reality of the big three no matter what japanese europeans and koreans vehicle will be number 1 over american cars a

  18. Iran (Shah of Iran) did not participate in the embargo of 1973 ifact he offered to increas production to off set the supply reduced by Arabs, get yor facts right!!!

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