Oil Shock of 1973
That year, Egypt and Syria, with the support of other Arab nations, launched a surprise attack on Israel on the holiest day of the Jewish calendar, Yom Kippur. As Israel was vastly outnumbered, it went on full nuclear alert, loading warheads into planes and long-range missiles. Based on this, the United States chose to re-supply Israel with arms and in response, OAPEC decided to "punish" the United States. It lasted until March 1974. 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.
Bretton Woods Agreement
Arab Oil Embargo
Price increases were also imposed. Since short term oil demand is inelastic, demand falls little when the price is raised. Thus, oil prices had to be raised dramatically to reduce demand to the new, lower level of supply. Anticipating this, the market price for oil immediately rose substantially, from $3 per barrel to $12 per barrel. The world financial system, which was already under pressure from the breakdown of the Bretton Woods Agreement , was set on a path of recessions and high inflation that persisted until the early 1980s, with oil prices continuing to rise until 1986.
Took country off gold standard. (Measures to do so were called "Nixon Shock") Wage-Price Control
Tax Cuts and spending restraints to control inflation Starts Whip inflation
"Tough Monetary Policy" (limited growth of money supply) Pushed for alternative energy
Economic Effects on America
Odd-even rationing was implemented; drivers of vehicles with license plates having an odd number as the last digit were allowed to purchase gasoline for their cars only on odd-numbered days of the month, while drivers of vehicles with even-numbered license plates were allowed to purchase fuel only on even-numbered days.The rule did not apply on 31st day of those months containing 31 days, or on February 29 in leap year.
Year-round Daylight savings time was implemented from January 6, 1974, to February 23, 1975. The move spawned significant criticism because it forced many children to commute to school before sunrise. The pre-existing daylight saving rules, calling for the clocks to be advanced one hour on the last Sunday in April, were restored in 1976.The crisis also prompted a call for individuals and businesses to conserve energy, most notably a campaign by the Advertising Counsel using the tag line "Don't Be Fuelish." Many newspapers carried full-page advertisements that featured cut-outs which could be attached to light switches, reading "Last Out, Lights Out: Don't Be Fuelish"
The Struggle of American During Gas Shortages
Oil Shock of 1979
However, a widespread panic resulted, added to by the decision of U.S. President Jimmy Carter to order the cessation of Iranian imports, driving the price far higher than would be expected under normal circumstances. In April of the same year, President Carter began a phased deregulation of oil prices. At the time, the average price of crude oil was $15.85 per barrel. Deregulating domestic oil price controls allowed U.S. oil output to rise sharply from the Prudehoe Bay fields, although oil imports fell sharply. Long lines once again appeared at gas stations and convenience stores, just as they did in 1973.
In 1980, following the outbreak of the Iran-Iraq War, oil production in Iran nearly stopped, and Iraq's oil production was severely cut as well.
After 1980, oil prices began a 20-year decline down to a 60 percent price drop in the 1990s. Oil exporters such as Mexico, Nigeria, and Venezuela expanded production ; the USSR became the first world producer, and North Sea and Alaskan oil flooded onto the market.
1973 & 1974 Stock Market Crash
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