1973 Oil Crisis

The 1973 oil crisis started in October 1973, when the members of Organization of Arab Petroleum Exporting Countries or the OAPEC (consisting of the Arab members of OPEC, plus Egypt, Syria and Tunisia) proclaimed an oil embargo. This was in response to the U.S. decision to re-supply the Israeli military during the Yom Kippur war.[1] It lasted until March 1974.[2] With the U.S. actions seen as initiating the oil embargo and the long term possibility of high oil prices, disrupted supply, and recession, a strong rift was created within NATO. Additionally, some European nations and Japan sought to disassociate themselves from the U.S. Middle East policy. Arab oil producers had also linked the end of the embargo with successful U.S. efforts to create peace in the Middle East, which complicated the situation. To address these developments, the Nixon Administration began parallel negotiations with both Arab oil producers to end the embargo, and with Egypt, Syria, and Israel to arrange an Israeli pull back from the Sinai and the Golan Heights after the fighting stopped. By January 18, 1974, Secretary of State Henry Kissinger had negotiated an Israeli troop withdrawal from parts of the Sinai. The promise of a negotiated settlement between Israel and Syria was sufficient to convince Arab oil producers to lift the embargo in March 1974. By May, Israel agreed to withdraw from some parts of the Golan Heights.[2]

Independently, the OAPEC 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.

Industrialized economies relied on crude oil, and OAPEC was their predominant supplier. 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. A minority dissenting opinion questions the causal relationship described by this theory.[3] 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.[4] - http://en.wikipedia.org/wiki/1973_oil_crisis