History of 1973 oil crisis

The Organization of the Petroleum Exporting Countries (OPEC), was founded by five oil-producing countries at a Baghdad conference on September 14, 1960. The five founding members of OPEC were Venezuela, Iraq, Saudi Arabia, Iran, and Kuwait.

By 1969, American domestic output of oil was peaking and could not keep pace with increasing demand from vehicles.

When Richard Nixon became president in 1969, he assigned George Shultz to head a committee to review the Eisenhower-era quota program. Shultz's committee recommended that the quotas be abolished and replaced with tariffs but Nixon decided to keep the quotas due to vigorous political opposition.

In 1963, the Seven Sisters controlled 86% of the oil produced by OPEC countries, but by 1970 the rise of "independent oil companies" had decreased their share to 77%. The entry of three new oil producers—Algeria, Libya, and Nigeria—meant that by 1970, 81 oil companies were doing business in the Middle East.

TAP line from Saudi Arabia to the Mediterranean interrupted in Syria, creating all-time tanker rate highs from June to December.

Libya raises posted prices and increases tax rate from 50 percent to 55 percent. Iran and Kuwait follow in November.

OPEC meeting in Caracas establishes 55 percent as minimum tax rate and demands that posted prices be changed to reflect changes in foreign exchange rates.

In the early 1960s Libya, Indonesia and Qatar joined OPEC. OPEC was generally regarded as ineffective until political turbulence in Libya and Iraq strengthened their position in 1970. Additionally, increasing Soviet influence provided oil-producing countries with alternative means of transporting oil to markets.

Arab oil-producing countries had attempted to use oil as leverage to influence political events on two prior occasions—the first was the Suez Crisis in 1956 when the United Kingdom, France, and Israel invaded Egypt. During the conflict, the Syrians sabotaged both the Trans-Arabian Pipeline and the Iraq–Baniyas pipeline, which disrupted the supply of oil to Western Europe. The second instance was when war broke out between Egypt and Israel in 1967, but despite continued Egyptian and Syrian enmity against Israel, the embargo lasted only a few months. Most scholars agree that the 1967 embargo was ineffective.

OPEC mandates " a complete and total embargo " against any company that rejects the 55 percent tax rate.

Nixon imposed a price ceiling on oil in 1971 as demand for oil was increasing and production was declining, which increased dependence on foreign oil imports as consumption was bolstered by low prices.

Under the Tehran Price Agreement of 1971, the posted price of oil was increased and, due to a decline in the value of the US dollar relative to gold, certain anti-inflationary measures were enacted.

Algeria nationalizes 51 percent of French oil concessions.

Libya concludes five weeks of negotiations with Western oil companies in Tripoli on behalf of itself, Saudi Arabia, Algeria, and Iraq. The agreement raises posted prices of oil delivered to the Mediterranean from $2.55 to $3.45 per barrel; provides for a 2.5 percent annual price increase plus inflation allowance; raises the tax rate from a range of 50-58 percent to 60 percent of the posted price.

U.S. Government institutes Phase I price controls. Invoking the powers granted to the president by the Economic Stabilization Act of 1970, President Richard Nixon orders a 90-day nationwide freeze on all wages, prices, salaries, and rents.

In September 1973, President Nixon said, "Oil without a market, as Mr. Mossadegh learned many, many years ago, does not do a country much good", referring to the 1951 nationalization of the Iranian oil industry, but between October 1973 and February 1974 the OPEC countries raised by posted price fourfold to nearly $12. Because oil was priced in dollars, oil producers' real income decreased when the dollar started to float free of the old link to gold. In September 1971, OPEC issued a joint communiqué stating that from then on, they would price oil in terms of a fixed amount of gold.

OPEC directs members to negotiate price increases to offset the devaluation of the U.S. dollar.

In 1971, the US had information that the Arab states were willing to implement another embargo.

U.S. Phase II price controls begin. The plan is to allow for gradual 2-3 percent annual price increases, however, domestic petroleum prices remain at Phase I levels.

Libya nationalizes British Petroleum concession.

OPEC threatens "appropriate sanctions" against companies that "fail to comply with . . . any action taken by a Member Country in accordance with [OPEC] decisions."

Iraq nationalizes Iraq Petroleum Company's (IPC) concession owned by British Petroleum, Royal Dutch-Shell, Compagnie Francaise des Petroles, Mobil, and Standard Oil of New Jersey (now Exxon). The concessions were valued at over one billion dollars.

In a show of support for Iraq, OPEC moves to prevent companies whose interests were nationalized in Iraq from increasing production elsewhere; appoints mediators between Iraq and IPC.

Libya acquires a 50 percent interest in two ENI concessions.

OPEC approves the plan providing for 25 percent government ownership of all Western oil interests operating within Kuwait, Qatar, Abu Dhabi, and Saudi Arabia beginning on January 1, 1973, and rising to 51 percent by January 1, 1983. (Iraq declines to agree.) Agreements were signed on December 21.

U.S. Phase III price controls begin. Allows for voluntary instead of mandatory price control on all U.S. prices. This does not prevent a sharp rise in heating oil prices caused by a severe winter and shortage of products.

In 1973, US production had declined to 16% of global output.

President Nixon suspends the mandatory oil import quota on No. 2 heating oil through April 30.

Shah of Iran announces that the 1954 operating agreement between a consortium of oil companies and Iran will not be renewed when it expires in 1979. The consortium was formed in 1954 as a means to settle a dispute between a new ministry in Iran and the Anglo-Iranian Oil Company (AIOC). The consortium included Standard Oil of New Jersey, Standard Oil of California, SOCONY-Vacuum, the Texas Company, Gulf, Royal Dutch-Shell, the Compagnie Francaise de Petroles, and the AIOC.

Iraq and IPC reach an agreement on compensation for nationalization.

Iran resumes petroleum exports.

Special Rule No. 1 reimposes mandatory (Phase II) price controls on the 23 largest oil companies. Smaller companies, representing 5 percent of the market, enjoy uncontrolled prices.

Shah of Iran and Consortium members agree to nationalize all assets immediately in return for an assured 20-year supply of Iranian oil.

OPEC discusses raising prices to offset the decline of U.S. dollar value.

In 1973, Nixon announced the end of the quota system. Between 1970 and 1973 US imports of crude oil had nearly doubled, reaching 6.2 million barrels per day in 1973. Until 1973, an abundance of oil supply had kept the market price of oil lower than the posted price.

U.S. Government ends Mandatory Oil Import Program. The program, established in 1959 by President Eisenhower, had limited imports of crude and product east of the Rocky Mountains to a percentage of domestic crude production.

Eight OPEC countries raise posted prices by 11.9 percent.

Nixon administration imposes a 60-day economy-wide price freeze, superseding Special Rule No. 1 for oil companies.

Libya nationalizes 51 percent of Occidental Petroleum concession and of the Oasis consortium.

President Nixon's Cost of Living Council imposes a two-tier price ceiling on crude petroleum sales: production of "old" oil (that produced at or below 1972 levels from existing wells) to be sold at March 1973 prices plus 35 cents; production of "new" oil (that produced above 1972 levels from existing wells and oil produced from new wells) to be sold at uncontrolled prices.

The rule had been intended to promote oil exploration. Scarcity was addressed by rationing (as in many countries). Motorists faced long lines at gas stations beginning in summer 1972 and increasing by summer 1973.

Libya nationalizes 51 percent of nine other companies' concessions: Esso, Libya/Sirte, Mobil, Shell, Gelensberg, Texaco, SoCal, Libyan-American (ARCO), and Grace.

On October 6, 1973, Egypt attacked the Bar-Lev Line in the Sinai Peninsula and Syria launched an offensive in the Golan Heights, both of which had been occupied by Israel during the 1967 War.

Iraq nationalizes Exxon and Mobil shares in Basrah Petroleum Company representing 23.75 percent equity in the company.

The Gulf Six (Iran, Iraq, Abu Dhabi, Kuwait, Saudi Arabia, and Qatar) unilaterally raise the posted price of Saudi Light marker crude 17 percent from $3.12 to $3.65 per barrel and announce production cuts.

On October 12, 1973, US president Richard Nixon authorized Operation Nickel Grass, a strategic airlift to deliver weapons and supplies to Israel in order to replace its materiel losses, after the Soviet Union began sending arms to Syria and Egypt.

On October 17, Arab oil producers cut production by 5% and instituted an oil embargo against Israel's allies: the United States, the Netherlands, Rhodesia, South Africa, and Portugal.

OPEC oil ministers agree to use the oil weapon in the Arab-Israeli War, mandate cut in exports, and recommend embargo against unfriendly states.

Saudi Arabia, Libya, and other Arab states proclaim an embargo on oil exports to the United States.

Arab oil ministers cancel the scheduled 5 percent cut in production for EEC.

Arab summit conference adopts open and secret resolutions on the use of the oil weapon. Embargo extended to Portugal, Rhodesia, and South Africa.

President Nixon signs the Emergency Petroleum Allocation Act (EPAA). Authorizes petroleum price, production, allocation, and marketing controls.

Saudi Arabia only consented to the embargo after Nixon's promise of $2.2 billion in military aid to Israel. The embargo was accompanied by gradual monthly production cuts—by December, production had been cut to 25% of September levels.

In 1973, Nixon named William E. Simon as the first Administrator of the Federal Energy Office, a short-term organization created to coordinate the response to the embargo. Simon allocated states the same amount of domestic oil for 1974 that each had consumed in 1972, which worked for states whose populations were not increasing.

Arab oil ministers announced a further production cut of 5 percent for January for non-friendly countries.

Rationing led to violent incidents when truck drivers chose to strike for two days in December 1973 over the limited supplies that Simon had allocated for their industry.

OPEC Gulf Six decides to raise the posted price of marker crude from $5.12 to $11.65 per barrel effective January 1, 1974.

Japan was hard hit since it imported 90 percent of its oil from the Middle East. It had a stockpile good for 55 days, and another 20-day supply was en route. Facing its most serious crisis since 1945 the government ordered a 10% cut in the consumption of industrial oil and electricity. In December it ordered an immediate 20% cut in oil use and electric power to Japan's major industries and cutbacks in leisure automobile usage.

Despite being little affected by the embargo, the UK nonetheless faced an energy crisis of its own—a series of strikes by coal miners and railroad workers over the winter of 1973–74 became a major factor in the defeat of the Labour government. The new Conservative government told the British to heat only one room in their houses over the winter.

Japanese automakers also benefited from the crisis. The jump in gasoline prices helped their small, fuel-efficient models to gain market share from the "gas-guzzling" Detroit competition. This triggered a drop in American sales of American brands that lasted into the 1980s.

Year-round daylight saving time was implemented from January 6, 1974, to October 27, 1975, with a break between October 27, 1974, and February 23, 1975, when the country observed standard time. Parents complained loudly that it forced many children to travel to school before sunrise. The prior rules were restored in 1976.

OPEC decides to freeze prices until April 1.

Kuwait announces 60 percent government participation in BP-Gulf concession; Qatar follows on February 20.

Kissinger unveils the Project Independence plan for US energy independence.

Heads of the state of Algeria, Egypt, Syria, and Saudi Arabia discuss oil strategy in view of the progress in Arab-Israeli disengagement.

Washington Energy Conference opens. Attended by 13 industrial and oil-producing nations. Called by the U.S. to resolve the international energy problems through economic cooperation among nations. Henry Kissinger unveils Nixon Administration's seven-point "Project Independence" plan to make the U.S. energy independent. Libya nationalizes three U.S. oil companies that had not agreed to 51 percent nationalization in September.

To help reduce consumption, in 1974 a national maximum speed limit of 55 mph (89 km/h) was imposed through the Emergency Highway Energy Conservation Act. Development of the Strategic Petroleum Reserve began in 1975, and in 1977 the cabinet-level Department of Energy was created, followed by the National Energy Act of 1978.

Although not regulated by the new legislation, auto racing groups voluntarily began conserving. In 1974, NASCAR reduced all race distances by 10%; the 24 Hours of Daytona and the 12 Hours of Sebring race were canceled.

Israel withdraws the last of its troops from the west side of the Suez Canal.

Arab oil ministers announced the end of the embargo against the United States, all except Libya.

The crisis eased when the embargo was lifted in March 1974 after negotiations at the Washington Oil Summit, but the effects lingered throughout the 1970s. The dollar price of energy increased again the following year, amid the weakening competitive position of the dollar in world markets.

Diplomacy by Kissinger produces a disengagement agreement on the Syrian front.

Arab oil ministers decide to end most restrictions on exports of oil to the United States but continue embargo against the Netherlands, Portugal, South Africa, and Rhodesia.

Saudi Arabia announces that it will increase its participation in Aramco to 60 percent. Abu Dhabi and Kuwait follow in September. Increases are retroactive to January 1.

IMF establishes its "oil facility," a special fund for loans to nations whose balance of payments has been severely affected by high oil prices.

The average US retail price of a gallon of regular gasoline rose 43% from 38.5¢ in May 1973 to 55.1¢ in June 1974. State governments asked citizens not to put up Christmas lights. Oregon banned Christmas and commercial lighting altogether. Politicians called for a national gasoline rationing program.

OAPEC lifts the embargo against the Netherlands.

OPEC instructs its Secretary-General to "carry out a study of supply and demand in relation to possible production controls."

Saudi Arabia increases its buy-back price from 93 percent to 94.9 percent of the posted price.

Saudi Arabians raise tax rate to 85 percent and royalty rate to 20 percent.

International Energy Agency was formed in Paris within the OECD framework. Saudi Arabia, Qatar, and United Arab Emirates announced a slight reduction in posted prices and tax rates.

U.S. Crude Oil Entitlements Program enacted, retroactive to November 1974.

The U.S. stock market recovers.

U.S. Federal oil depletion allowance eliminated for large producers.

Business Week publishes Kissinger's interview hinting at military action against oil countries in case of "actual strangulation."

Twenty-four OECD members sign an agreement to establish a $25 billion lending facility to provide assistance to industrial nations hurt by high oil prices.

World Bank establishes its "Third Window," a fund to make loans to countries too rich to qualify for "soft" no-interest loans, but too distressed to afford loans at the prevailing normal lending rates. The action represents significant cooperation between oil-exporting and industrial nations.

OPEC announces a 15 percent increase in government per barrel revenues as of October 1.

Venezuela and foreign oil companies agree on nationalization as of January 1, 1976.

Kuwait and Gulf and BP agree on terms of nationalization.

Iraq completes nationalization by taking over the BP, CFP, and Shell shares of the Basrah Petroleum Company.

President Ford signs the Energy Policy and Conservation Act (EPCA) effective February 1976. Authorizes the establishment of the Strategic Petroleum Reserve (SPR), participation in the International Energy Program, and oil price regulation.

In 1975, the Energy Policy and Conservation Act was passed, leading to the creation of the Corporate Average Fuel Economy (CAFE) standards that required improved fuel economy for cars and light trucks.

The Brazilian government implemented its "Proálcool" (pro-alcohol) project in 1975 that mixed ethanol with gasoline for automotive fuel.

EPCA 3-tier price regulation begins. Small changes in Entitlements Program.

Lebanese civil war causes a drop in Iraq exports through trans-Lebanon pipelines to the Mediterranean.

In 1976, Congress created the Weatherization Assistance Program to help low-income homeowners and renters reduce their demand for heating and cooling through better insulation.

U.S. stripper well oil prices decontrolled.

640-foot (200 m) oil tanker Argo Merchant runs aground on the Nantucket Shoals, spilling 7.6 million US gallons (29,000 m3) of No. 6 fuel oil.

OPEC goes to two-tier pricing (Saudi Arabia and the United Arab Emirates use $12.09 per barrel and other OPEC countries use $12.70per barrel).

OPEC prices reunified at $12.70 per barrel as Saudi Arabia and UAE fall into line, then the official price rises to $13.66 per barrel.

Student protests against the government of Reza Pahlavi, Shah of Iran, begin, touching off a wave of political unrest and violent clashes between police and demonstrators. Throughout the year increasing anti-Shah activities are led by Muslim fundamentalists seeking to establish a Muslim state.

Amoco Cadiz tanker runs aground off the coast of France, spilling 1.6 million barrels (250,000 m3) of crude oil. (Largest crude spill to date.)

Iran and Saudi Arabia block efforts of OPEC price hawks to fix the price of OPEC oil in a currency more stable than the U.S. dollar. Say the world economy cannot support associated price increases. Are accused by hawks of being U.S. agents.

Shah puts Iran under military rule. Muslim leader Noori was arrested in the crackdown of opposition groups.

Pipeline fire drops Iraqi production from 600,000 barrels per day (95,000 m3/d) to 300,000 barrels per day (48,000 m3/d).

First emergency Crude Oil Buy-Sell Program allocations.

Shah leaves Iran on vacation, never to return. Bakhtiar government was established by the Shah to preside until unrest subsides.

Saudi Arabia announces a drastic cut in first-quarter production. 9.5 MMBD ceiling imposed. Although actual cuts never reach announced levels, spot prices of Middle East light crudes rise 36 percent.

1 million Iranians march in Teheran in a show of support for the exiled Ayatollah Khomeini, fundamental leader.

OPEC makes a full 14.5 percent price increase for 1979 effective on April 1. Marker crude raised to $14.56 per barrel.

Gasoline shortage/world oil glut.

DOE announces a $5 per barrel entitlement to importers of heating oil. Saudi Arabia announces intention to increase direct sales and to sell less through Aramco. Both announcements send prices higher.

Phased oil price decontrol begins. Involves gradual 28-month increase of "old" oil price ceilings, and a slower rate of increase of "new" oil price ceilings.

OPEC raises prices on average of 15 percent, effective July 1.

Buy-Sell Program sales average more than 400,000 bbl/d (64,000 m3/d) from October 1979 through March 1980 - the highest level since February 1976, due to emergency allocations.

Canada eliminates light crude oil exports to U.S. refiners, except for those exports required by operational constraints of pipelines.

Carter orders cessation of Iranian imports to the U.S.

Iran cancels all contracts with U.S. oil companies.

Saudi Arabia raises marker crude price to $24 per barrel.

OPEC decides on a 14.5 percent price increase for 1979, to be implemented quarterly.

Iranian production hits 1.5 Mbbl/d (240,000 m3/d) in mid-December; 500,000 on December 27, a 27-year low. OPEC production rises 1.6 MMBD over two months due to increased Saudi production.

Iranian oil production starts dropping.