Economic Transformations

1970s

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

Enacted in 1944 allowed central banks of other countries to control fixed exchange rates between currencies. This system failed in 1971 when american inflation and the trade deficit brought down the value of the dollar. The U.S. was forced to allow the value of the dollar to "float" or fluctuate, and soon other countries followed.


Arab Oil Embargo

On October 16, 1973, OPEC announced a decision to raise the posted price of oil by 70%, to $5.11 a barrel. The following day, oil ministers agreed to the embargo, a cut in production by five percent from September's output, and to continue to cut production over time in five percent increments until their economic and political objectives were met.October 19, U.S. President Richard Nixon requested Congress to appropriate $2.2 billion in emergency aid to Israel. Saudi Arabia and the other Arab oil-producing states quickly followed suit, joining the embargo on October 20, 1973.At their meeting in Kuwait the OPEC oil-producing countries, proclaimed the oil boycott that provided for curbs on their oil exports to various consumer countries and a total embargo on oil deliveries to the United States as a "principal hostile country".

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.

1970's Presidents

Economic Effects on America

The shock produced chaos in the West. In the United States, the retail price of a gallon of gasoline (petrol) rose from a national average of 38.5 cents in May 1973 to 55.1 cents in June 1974. State governments requested citizens not put up Christmas lights, with Oregon banning Christmas as well as commercial lighting altogether. Politicians called for a national gas rationing program. Nixon requested gasoline stations to voluntarily not sell gasoline on Saturday nights or Sundays; 90% of owners complied, which resulted in lines on weekdays.

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"

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The Struggle of American During Gas Shortages

The Oil Embargo Crisis of 1973

Oil Shock of 1979

The 1979 (or second) oil crisis in the United States occurred in the wake of the Iranian Revolution. Amid massive protests, the Shan of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the Ayatollah Khomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil sector, with production being greatly curtailed and exports suspended. When oil exports were later resumed under the new regime, they were inconsistent and at a lower volume, which pushed prices up.
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

The 1973–1974 bear market was a bear market that lasted between January 1973 and December 1974. Affecting all the major stock markets in the world, particularly the United Kingdom, it was one of the worst stock market downturns in modern history.The crash came after the collapse of the Bretton Woods Agreement over the previous two years, with the associated 'Nixon Shock' and United States dollar devaluation under the Smithsonian Agreement . It was compounded by the outbreak of the 1973 oil crisis in October of that year. It was a major event in the 1970s recession.

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