World competition over resources
The Arab-Israeli conflict triggered an energy crisis in the making. Before the embargo, the industrialized West, especially the United States, had taken cheap and plentiful petroleum for granted. (Indeed, the form American cities took after World War II – with expansive suburbs full of detached, single-family homes – depended on the automobile as the principal means of transportation – a form that consumes oil en masse as fuel.) Between 1945 and the late 1970s, the West and Japan consumed more oil and minerals than had been used in all previous recorded history. Oil consumption in the United States had more than doubled between 1950 and 1974. With only 6 percent of the world’s population, the U.S. was consuming 33 percent of the world’s energy. At the same time, America’s economy accounted for a quarter of total global production, meaning US workers were over 5 times more productive than the global average (because of their advanced industrial sector, which accounts for the bulk of energy usage).
The fall of the dollar
U.S. economic policies had an important effect on the crisis. While the OPEC boycott was an immediate trigger, historians increasingly see the crisis as being rooted in American economic policies.
Oil, especially from the Middle East, was paid for in United States dollars, at prices fixed in dollars. U.S. President Richard Nixon had inherited an economy in which growth was already sluggish, in which inflation was already troubling. By the summer of 1971, the president was under strong public pressure to act decisively to end the dilemma of rising prices and general economic stagnation (see “stagflation”).
The Essay on Brave New World Society And Socio economic Class
ter> Discuss how the society in Brave New World works to ensure that people do not change their socio-economic class. Through Brave New World, Huxley depicts a new, industrialized world, which is financially stable and has prevented poverty and self-destruction. Dictatorial governments are there to ensure stability and maintain perfection of the world. Therefore, just like under any other ...
Nixon thus released the dollar from the fluctuating gold standard that had controlled its worth since the signing of the Bretton Woods pact at the end of World War II, allowing its value to fall in world markets. The United States suspended convertibility of the dollar on August 15, 1971; the dollar was devalued by 8 percent in relation to gold in December 1971, and devalued again in 1973.
The devaluation resulted in increased world economic and political uncertainty. Concurrently, in the early 1970s, the fall in the dollar went along with a fall in the price in dollars for oil. This improved the situation of U.S. industrialists in relation to European and Japanese competition. But the de-valorization, and then devaluation, of the dollar crystallized the unease of raw materials producers in the Third World who saw the wealth under their lands being reduced and their assets growing in a currency that was worth significantly less than it had been worth just quite recently. This set the stage for the struggle for control of the world’s natural resources and for a more favorable sharing of the value of these resources between the rich countries and the oil-exporting nations of OPEC.
OPEC devised a strategy of counter-penetration, whereby it hoped to make industrial economies that relied heavily on oil imports vulnerable to Third World pressures. Dwindling foreign aid from the United States and its allies, combined with the West’s pro-Israeli stance in the Middle East, angered the Arab nations in OPEC.
Founding of OPEC
OPEC consisted of thirteen nations, including seven Arab countries but also other major petroleum-exporting countries in the developing world like Iran and Venezuela. It had been formed in 1960 to protest pressure by major oil companies (mostly owned by U.S., British, and Dutch nationals) to reduce oil prices and payments to producers. At first it had operated as an informal bargaining unit for the sale of oil by Third World nations. It confined its activities to gaining a larger share of the revenues produced by Western oil companies and greater control over the levels of production. However, in the early 1970s it began to display its strength.
The Term Paper on Fossil Fuels Energy Oil World
Throughout the entire history of mankind, the technological advancements that civilisations have made have always been tied in with the development of energy sources. The first human energy technology was fire, along with human labour as the major energy source. This has bee supplemented by animals for agriculture and transportation since at least the dawn of agriculture some 10, 000 years ago. ...
The Yom Kippur War
U.S. President Richard Nixon and Israeli Prime Minister Golda Meir meeting on November 1, 1973. Nixon’s National Security Advisor Henry Kissinger is directly behind Nixon.
The persistence of the Arab-Israeli conflict finally triggered a response that transformed OPEC from a mere cartel into a formidable political force. After the Six Day War of 1967 the Arab members of OPEC formed a separate, overlapping group (Organization of Arab Petroleum Exporting Countries) for the purpose of centering policy and exerting pressure on the West over its support of Israel. Egypt and Syria, though not major oil-exporting countries, joined the latter grouping to help articulate its objectives. Later, the Yom Kippur War of 1973 galvanized Arab opinion. Furious at the emergency re-supply effort that had enabled Israel to withstand Egyptian and Syrian forces, the Arab world imposed the 1973 oil embargo against the United States, Western Europe, and Japan. By the early 1970s the great Western oil conglomerates suddenly faced a unified bloc of producers.
As mentioned, the Arab-Israeli conflict triggered a crisis already in the making. The West could not continue to increase its energy use 5 percent annually, pay low oil prices, yet sell inflation-priced goods to the petroleum producers in the Third World. This was stressed by the Shah of Iran, whose nation was the world’s second-largest exporter of oil and the closest ally of the United States in the Middle East at the time. “Of course [the world price of oil] is going to rise,” the Shah told the New York Times in 1973. “Certainly! And how… You [Western nations] increased the price of wheat you sell us by 300 percent, and the same for sugar and cement… You buy our crude oil and sell it back to us, redefined as petrochemicals, at a hundred times the price you’ve paid to us… It’s only fair that, from now on, you should pay more for oil. Let’s say 10 times more.
The Term Paper on Argentina’s Economy after World War II
IB Extended Essay: Did the Second World War Improve or Worsen Argentina's Economy?The German invasion of Poland on September 1, 1939 was not an isolated event. Instead, it unleashed the biggest conflict in human history whose effects were felt all over the globe (Paz 50). To the European nations directly involved in the conflict the Second World War brought pain, misery, and death. However, as one ...
On October 16th, 1973, as part of the political strategy that included the Yom Kippur War, OPEC cut production of oil, and placed an embargo on shipments of crude oil to the West, with the United States and the Netherlands specifically targeted. Also imposed was a boycott of Israel, and price increases. Since oil demand falls little with price rises, prices had to rise dramatically to reduce demand to the new, lower, level of supply. Anticipating this, the market price for oil immediately rose substantially. A world financial system already under pressure from the breakdown of the Bretton Woods agreement, would be set off on a path of a series of recessions and high inflation that would persist until the early 1980’s, and elevated oil prices that would persist until 1986.
The price of oil during the embargo.
The graph to the right is based on the nominal, not real, price of oil, and so overstates prices at the end. However, the effects of the Arab Oil Embargo are clear – it effectively doubled the real price of crude oil at the refinery level, and caused massive shortages in the US. This would exacerbate a recession that had already begun, and lead to a global recession through the rest of 1974.
Over the long term, the oil embargo would change the nature of policy in the West, towards more exploration, towards energy conservation, and towards more restrictive monetary policy, which more aggressively fought inflation.
