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ARAB OIL EMBARGO |
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ARAB OIL EMBARGO |
Led by Saudi Arabia, OPEC announced on October 16, 1973, as part of the political strategy that accompanied the Yom Kippur War, that the Arab countries were cutting production and placing an embargo on shipments of crude oil to Western countries, the US and the Netherlands in particular. At the same time, they imposed a complete boycott of Israel. The oil companies and other intermediaries cooperated with the embargo; the result was that world oil prices rose to previously unheard of levels, four times the previous highs. The economies of the industrialized countries across the globe were damaged; by early 1974 most of the world was hit by the worst slump since the Great Depression of 1932-1940.
While psychologically effective for a time, the actual results of the Arab/OPEC strategy were primarily price increases, not supply disruption. During the October 1973 to March 1974 embargo period, crude oil supplies in the US grew tightest in February 1974 and even then were only 5.1 percent lower then the daily average for the first three-quarters of the preceding year. What is more, the Netherlands, singled out by the Arabs, experienced less of a shortfall than France and Britain, the countries that led western Europe's pro-Arab political initiative. The Arab states ended their production limitation plan and embargo without winning their political demands against Israel.
Nonetheless, over the next decade or so the Arabs grew enormously wealthy from the "oil shock". Huge cash flows poured into the Gulf states who responded with buying sprees for military weapons, building projects, and lavish consumption. US and European arms manufacturers, banks, shipping, and industrial building contractors like Bechtel did very well making a business out of "recycling petrodollars".
At the same time, however, the much higher prices for crude oil stimulated development activity in every country that had any potential for oil fields. It took years, but ultimately old fields were expanded and new fields were discovered, wells were drilled and pipe lines built to ports. The global supply of crude oil was dramatically increased, brought forth by the higher prices, as any first year economics student could have predicted. This resulted in a still-growing glut and the Middle East, while still quite important, is no longer the dominant world supplier of oil. The collapse of the oil cartel in the 1980s, the transformation in the global energy markets, and the political disunity in the Arab world have made the notion of the "Arab oil weapon" a distant memory.
During the era when the Arab nations boycotted Israel, corporations and nations had to agree to Arab wishes and not do business with Israel. While not necessarily pro-Israel, these nations and their companies did not enjoy the unreasonable demands of Arab kings, dictators and even terrorist nations and groups who extorted financial benefits or political concessions in exchange for maintaining the oil flow. Now that the oil weapon has been defused (largely), the emphasis for the developed world has shifted to an eager participation with Israel's high-tech markets and the well-developed Israeli consumer market.
Even the Arab countries, at least the moderate ones, understand the changes; Saudi Arabia has disavowed the use of oil as a weapon. Every regime, regardless of its structure or politics, wants the cash flow from their oil. And the principal suppliers of US oil today are more reliable and better allies than the Persian Gulf nations.
All is not completely well, however. International institutions have methods and practices that were developed to protect the oil supplies, even at the expense of Israel's security. Even though the current situation has changed, the institutions change much more slowly.
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