1970s energy crisis
Date | 1973 | –1980
---|---|
Also known as | 1970s oil crisis |
The 1970s energy crisis occurred when the
The crisis began to unfold as petroleum production in the United States and some other parts of the world peaked in the late 1960s and early 1970s.[3] World oil production per capita began a long-term decline after 1979.[4] The oil crises prompted the first shift towards energy-saving (in particular, fossil fuel-saving) technologies.[5]
The major industrial centers of the world were forced to contend with escalating issues related to petroleum supply. Western countries relied on the resources of countries in the Middle East and other parts of the world. The crisis led to stagnant economic growth in many countries as oil prices surged.[6] Although there were genuine concerns with supply, part of the run-up in prices resulted from the perception of a crisis. The combination of stagnant growth and price inflation during this era led to the coinage of the term stagflation.[7] By the 1980s, both the recessions of the 1970s and adjustments in local economies to become more efficient in petroleum usage, controlled demand sufficiently for petroleum prices worldwide to return to more sustainable levels.
The period was not uniformly negative for all economies. Petroleum-rich countries in the Middle East benefited from increased prices and the slowing production in other areas of the world. Some other countries, such as Norway, Mexico, and Venezuela, benefited as well. In the United States, Texas and Alaska, as well as some other oil-producing areas, experienced major economic booms due to soaring oil prices even as most of the rest of the nation struggled with the stagnant economy. Many of these economic gains, however, came to a halt as prices stabilized and dropped in the 1980s.
Key periods
Arab-Israeli conflict
Ever since Israel declared independence in 1948 there was conflict between Arabs and Israelis in the Middle East, including a number of wars. The Suez Crisis, also known as the Second Arab–Israeli war, was sparked by Israel's southern port of Eilat being blocked by Egypt, which also nationalized the Suez Canal belonging to Anglo-French investors. One of the objectives of the invasion was the removal of President Gamal Abdel Nasser who was aligning with the Soviet Union.[8]
The
Production peaks around 1970
The real price of petroleum was stable in the 1970 timeframe, but there had been a sharp increase in American imports, putting a strain on American balance of trade, alongside other developed nations. During the 1960s, petroleum production in some of the world's top producers with extraction technology at the time began to peak. West Germany reached its production peak in 1966, Venezuela and the United States in 1970, and Iran in 1974.[13][14] Canada's conventional oil production peaked around this same time (though non-conventional production later helped revive Canadian production to some degree).[15] The worldwide production per capita peaked soon afterward.[4]
Although production in other parts of the world was increasing, the peaks in these regions began to put substantial upward pressure on world oil prices. Equally as important, control of the oil supply became an increasingly important problem as countries like West Germany and the U.S. became increasingly dependent on foreign suppliers for this key resource.[citation needed]
1973 oil crisis
The 1973 oil crisis is a direct consequence of the US production peak in late 1960 and the beginning of 1971 (and shortages, especially for heating oil, started from there). The "embargo" as described below is the "practical name" given to the crisis. For the main Arab producers, the "embargo" allowed them to show to "the Arab street" that they were doing something for the Palestinians. In real market terms (number of barrels) the embargo was almost a non-event, and only from a few countries, towards a few countries.[16]
The "Embargo" was never effective from Saudi Arabia towards the US, as reported by James E. Akins in interview at 24:10 in the documentary "la face cachée du pétrole part 2".[17] Akins, who audited US capacity for Nixon after US peak, was US ambassador in Saudi Arabia at that time. Lawrence Rocks and Richard Runyon captured the unfolding of these events at the time in The Energy Crisis book.[18][19] In October 1973, the members of
Independently, the OPEC members agreed to use their leverage over the world price-setting mechanism for oil to stabilize their real incomes by raising world oil prices. This action followed several years of steep income declines after the recent failure of negotiations with the major Western oil companies earlier in the month.
For the most part, industrialized economies relied on crude oil,[citation needed] and OPEC was their major supplier.[citation needed] Because of the dramatic inflation experienced during this period, a popular economic theory has been that these price increases were to blame, as being suppressive of economic activity. However, the causality stated by this theory is often questioned.[21] The targeted countries responded with a wide variety of new, and mostly permanent, initiatives to contain their further dependency. The 1973 "oil price shock", along with the 1973–1974 stock market crash, have been regarded as the first event since the Great Depression to have a persistent economic effect.[22]
1979 energy crisis
A crisis emerged in the
In 1980, following the Iraqi invasion of Iran, oil production in Iran nearly stopped, and Iraq's oil production was severely cut as well.
After 1980, oil prices began a decline as other countries began to fill the production shortfalls from Iran and Iraq.
1980s oil glut
The
In June 1981,
After 1980, reduced demand and overproduction produced a glut on the world market, causing a six-year-long decline in oil prices culminating with a 46 percent price drop in 1986.
Effects
Recession
The U.S. reported a negative economic growth during the period concerning the 1970s and it remained weak till the 1980s as the post world war II economic boom drew to a close. But it was a different type of recession as it was a scenario of stagflation which is a rare economic consequence.
Other causes that contributed to the recession included the
According to the National Bureau of Economic Research, the U.S. economy slid into a recession during the period of 1973-75.[33] Inflation levels remained high even when an economic expansion took place afterwards.
During this recession, the
The recession also lasted from 1973 to 1975 in the United Kingdom. The GDP declined by 3.9%[35][36] or 3.37%[37] depending on the source. It took 14 quarters for the UK's GDP to recover to that at the start of recession.[35]
Emergence of new oil producers
High oil prices in the 1970s induced investment in oil production by non-OPEC countries, particularly for reserves with a higher cost of production.[38][39] These included Prudhoe Bay in Alaska, the North Sea offshore fields of the United Kingdom and Norway, the Cantarell offshore field of Mexico, and oil sands in Canada.[40][41][42]
Strategic petroleum reserves
As a result of the 1973 crisis many nations created strategic petroleum reserves (SPRs), crude oil inventories (or stockpiles) held by the governments of particular countries or private industry, for the purpose of providing economic and national security during an energy crisis. The International Energy Agency (IEA) was formed in the wake of this crisis and currently comprises 31 member countries.[43][44] According to the IEA, approximately 4.1 billion barrels (650,000,000 m3) of oil are held in strategic reserves by the member countries, of which 1.4 billion barrels (220,000,000 m3) is government-controlled. The remainder is held by private industry.[45] These reserves are intended to be equivalent to at least 90 days of net imports. At the moment the U.S. Strategic Petroleum Reserve is one of the largest government-owned reserves, with a capacity of up to 713.5 million barrels (113,440,000 m3).[46]
Recently, other non-IEA countries have begun creating their own strategic petroleum reserves, with China being the second largest overall and the largest non-IEA country.[47]
Middle East
Since
The large oil discoveries in the Middle East gave some Muslim countries unique leverage in the world, beginning in the 1960s. The 1973 and 1979 crises, in particular, were demonstrations of the new power that these countries had found. The United States and other countries were forced to become more involved in the conflicts between these states and Israel.
OPEC
One of the first challenges OPEC faced in the 1970s was the United States'
Finally OPEC started pricing oil against gold to combat the situation.[48] But OPEC still struggled to maintain stability in the region as the negotiations between them and other Western oil companies bore little to no positive results.
"Oil Patch"
The major oil-producing regions of the U.S.—
Energy mix
Following the 1970s, the
See also
- Energy crisis
- 1973–75 recession
- 1979 world oil market chronology
- 1980s oil glut
- 1990 oil price shock
- 2020s commodities boom
- Hubbert peak theory
- International Energy Forum
References
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