Oil crisis

Egypt and Syria conducted a surprise military attack on Israel and launched the Yom Kippur War or the 4th Arab-Israeli War on October 6, 1973 after Israel rejected Egypt’s offer of non-participation in the war in exchange for Israel to go back to its pre-1967 borders. This conflict was between the coalitions of Arab states and Israel as a result of a series of wars ignited by the United Nation’s partition plan of 1947 which left most Arabs dissatisfied. A part of the Arab coalition plan to win the war was to use crude oil as a weapon that would be launched to Israel’s primary supporter which the United States in the form of an oil embargo. The United States and its allies were heavily dependent on oil to fuel their massive industrial economies. The price of crude oil was relatively cheap compared to the refined product in the form of gasoline which most of it are eventually shipped back to the Middle East at a much higher price. During this period, most of the Arab states were dissatisfied with the high price of imported commodities coming primarily from the United States such as wheat or sugar. As a response to the great disparity in price between the imported price of commodities from the United States and the relatively cheap price of crude oil, oil producing Arab nations repeatedly stressed about plans to raise the price level of crude oil.

This plan was set into motion as an effective weapon to disrupt the economy of the United States which heavily supported Israel at the time of the conflict. Arab leaders such as King Faisal of Saudi Arabia and Egyptian president Anwar Sadat persuaded the oil cartel OPEC to initiate the embargo. OPEC complied and raised the price of oil from $1.53 to $5.11 a barrel after President Richard Nixon announced a $2.2 billion emergency aid for Israel in October 20, 1973. A series of economic shocks took the US stock market at a steady decline. The suspension of the US dollar’s convertibility to gold in 1971 resulted in spiraling domestic inflation and the oil price increase by OPEC all led to the decline of US equities market. To counter the scarcity of crude oil imports, the US government imposed price controls on most commodities especially oil. The price controls further worsened the situation and created an artificially induced petroleum shortage which made gasoline unavailable to a majority of gas stations. The oil embargo was ended on March 17, 1974 after Israel withdrew its troops in Sinai giving up the land back to Egypt.

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