Oil Embargo, 1973?1974
During the 1973 Arab-Israeli War, Arab members of the Organization of Petroleum
Exporting Countries (OPEC) imposed an embargo against the United States in
retaliation for the U.S. decision to re-supply the Israeli military and to gain
leverage in the post-war peace negotiations. Arab OPEC members also extended the
embargo to other countries that supported Israel including the Netherlands,
Portugal, and South Africa. The embargo both banned petroleum exports to the
targeted nations and introduced cuts in oil production. Several years of
negotiations between oil-producing nations and oil companies had already
destabilized a decades-old pricing system, which exacerbated the embargo’s
effects.
The 1973 Oil Embargo acutely strained a U.S. economy that had grown increasingly
dependent on foreign oil. The efforts of President Richard M. Nixon’s
administration to end the embargo signaled a complex shift in the global
financial balance of power to oil-producing states and triggered a slew of U.S.
attempts to address the foreign policy challenges emanating from long-term
dependence on foreign oil.
By 1973, OPEC had demanded that foreign oil corporations increase prices and cede
greater shares of revenue to their local subsidiaries. In April, the Nixon
administration announced a new energy strategy to boost domestic production to
reduce U.S. vulnerability to oil imports and ease the strain of nationwide fuel
shortages. That vulnerability would become overtly clear in the fall of that
year.
The onset of the embargo contributed to an upward spiral in oil prices with
global implications. The price of oil per barrel first doubled, then quadrupled,
imposing skyrocketing costs on consumers and structural challenges to the
stability of whole national economies. Since the embargo coincided with a
devaluation of the dollar, a global recession seemed imminent. U.S. allies in
Europe and Japan had stockpiled oil supplies, and thereby secured for themselves
a short-term cushion, but the long-term possibility of high oil prices and
recession precipitated a rift within the Atlantic Alliance. European nations and
Japan found themselves in the uncomfortable position of needing U.S. assistance
to secure energy sources, even as they sought to disassociate themselves from
U.S. Middle East policy. The United States, which faced a growing dependence on
oil consumption and dwindling domestic reserves, found itself more reliant on
imported oil than ever before, having to negotiate an end to the embargo under
harsh domestic economic circumstances that served to diminish its international
leverage. To complicate matters, the embargo’s organizers linked its end to
successful U.S. efforts to bring about peace between Israel and its Arab
neighbors.
Partly in response to these developments, on November 7 the Nixon administration
announced Project Independence to promote domestic energy independence. It also
engaged in intensive diplomatic efforts among its allies, promoting a consumers’
union that would provide strategic depth and a consumers’ cartel to control oil
pricing. Both of these efforts were only partially successful.
President Nixon and Secretary of State Henry Kissinger recognized the constraints
inherent in peace talks to end the war that were coupled with negotiations with
Arab OPEC members to end the embargo and increase production. But they also
recognized the linkage between the issues in the minds of Arab leaders. The
Nixon administration began parallel negotiations with key oil producers to end
the embargo, and with Egypt, Syria, and Israel to arrange an Israeli pullout
from the Sinai and the Golan Heights. Initial discussions between Kissinger and
Arab leaders began in November 1973 and culminated with the First
Egyptian-Israeli Disengagement Agreement on January 18, 1974. Though a finalized
peace deal failed to materialize, the prospect of a negotiated end to
hostilities between Israel and Syria proved sufficient to convince the relevant
parties to lift the embargo in March 1974.
The embargo laid bare one of the foremost challenges confronting U.S. policy in
the Middle East, that of balancing the contradictory demands of unflinching
support for Israel and the preservation of close ties to the Arab oil-producing
monarchies. The strains on U.S. bilateral relations with Saudi Arabia revealed
the difficulty of reconciling those demands. The U.S. response to the events of
1973?1974 also clarified the need to reconcile U.S. support for Israel to
counterbalance Soviet influence in the Arab world with both foreign and domestic
economic policies.
The full impact of the embargo, including high inflation and stagnation in oil
importers, resulted from a complex set of factors beyond the proximate actions
taken by the Arab members of OPEC. The declining leverage of the U.S. and
European oil corporations (the “Seven Sisters”) that had hitherto stabilized the
global oil market, the erosion of excess capacity of East Texas oil fields, and
the recent decision to allow the U.S. dollar to float freely in the
international exchange all played a role in exacerbating the crisis. Once the
broader impact of these factors set in throughout the United States, it
triggered new measures beyond the April and November 1973 efforts that focused
on energy conservation and development of domestic energy sources. These
measures included the creation of the Strategic Petroleum Reserve, a national
55-mile-per-hour speed limit on U.S. highways, and later, President Gerald R.
Ford’s administration’s imposition of fuel economy standards. It also prompted
the creation of the International Energy Agency proposed by Kissinger.