Economic Statecraft
Oil Crisis 50 Years On: Is History Repeating Itself?

On October 7, 2023, Hamas announced the start of the Al-Aqsa Flood Operation, and the organisation’s paramilitary groups captured a number of settlements in southern Israel, taking Israeli troops and civilians hostage. The outbreak of hostilities coincided with the 50th anniversary of the Yom Kippur War; the scale of the conflict and the growing tension around the current escalation could lead to catastrophic consequences, not only for the region, but for the entire world community.

Comparing the current escalation with the Yom Kippur War, a logical question arises about the possibility of a repeat of the Oil Crisis of 1973, which was partly prompted by the consolidation of Western military-political assistance on the side of Israel. The Arab OPEC member countries at the time were able to successfully use the “oil weapon” and inflict a significant blow to the economies of Israel’s allies. But in order to try to answer the question about the likelihood of a new “oil crisis”, it is necessary to analyse the genesis and development of the “oil shock” of 1973.

1973 oil crisis: how and why did it happen?

Members of the Organization of Arab Petroleum Exporting Countries (OAPEC), including Saudi Arabia, Algeria, Bahrain, Egypt, Iraq, Kuwait, Libya, Qatar, Syria and the United Arab Emirates, announced on October 17, 1973 their refusal to sell oil to the United States, Canada, Japan, Britain, the Netherlands and a number of other European states that supported Israel in the war against several Arab countries. That day marked the beginning of the largest global energy crisis in the history of oil development, but it was not the first attempt to declare an oil embargo by Arab countries. There were previous attempts to use such sanctions during the second Arab-Israeli war of 1956 (Suez Crisis) and the third Arab-Israeli war of 1967 (Six Day War), but the attempts were unsuccessful, since Western economies were not so dependent on Arab oil.

Let’s note that the period after World War II was characterised by the growth of national consciousness and the struggle for independence among most of the countries of the Middle East and North Africa. “Pan-Arabism”, as a political movement which emerged in late 19th and early 20th centuries, was still strong and called for the creation of a single state based on a common language and culture, regardless of religion. “Pan-Arabism” received its second wind in 1958, when nationalism in Arab society reached its peak. Egypt and Syria announced the creation of the United Arab Republic, headed by Egyptian President Gamal Abdel Nasser, one of the main fighters for the unification of Arabic-speaking countries. In parallel, the Arab Federation, including Iraq and Jordan, was created the same year. Later, as a result of a military coup in 1969, Muammar Gaddafi came to power in Libya, and in 1971 he proposed that Egypt, Sudan and Syria create a single state. 

In addition to political goals, there were also economic ones. Battles between exporting countries and Western countries and their companies began long before the 1973 oil crisis and previous attempts to use “energy weapons.” Between 1950 and 1960 Western countries, mainly the USA and Britain, controlled more than 90% of all oil exports in the world through the seven largest oil-producing companies: British Petroleum, Exxon, Gulf Oil, Mobil, Royal Dutch Shell, Chevron and Texaco. A secret cartel of Western companies unilaterally reduced the purchase price of oil in 1960, which caused discontent among exporting countries, some of which created the Organization of Petroleum Exporting Countries (OPEC) in Baghdad that same year. Against the background of all of the above, there was significant growth in the global economy, which led to a global increase in demand for oil from 21.4 million to 45.3 million barrels per day. Between 1968 and 1972, the share of Arab oil in the total imports of European countries more than doubled from 13 to 30%.
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Under these conditions, a “black day” came for the economies of Western countries – October 17, 1973. This day is considered to be the starting point of the global energy crisis, which remains the worst in history. Arab sanctions against the West provoked a fourfold jump in world oil prices, led to a slowdown in economic growth in the United States and among Washington’s allies, and also strengthened the role of the Middle East and the USSR in the global energy market. As a result of the Arab countries’ support, OPEC announced a boycott of oil supplies to countries that supported Israel – including the United States, Britain and Western European countries. This led to a reduction in oil exports and higher prices.

This caused a major shock to the global oil market, driving up prices and causing panic among consumers. In light of the crisis, many countries took measures to conserve and diversify energy sources. Efforts were made to find alternative energy sources such as nuclear and solar power. The 1973 oil crisis had a significant impact on the global economy and energy sector. It emphasised the dependence of developed countries on oil imports and stimulated the search for alternative energy sources. The crisis also strengthened OPEC’s role in global oil markets and demonstrated the political strength of oil exporting countries. While the impact of the crisis was severe, it also stimulated new energy technologies and cooperation in energy, technology and innovation aimed at developing alternative energy sources and energy efficiency.

Many industry experts noted that sanctions on oil exporters returned Europe to the difficult post-war years of deprivation and shortages. The United States suffered no less, with gasoline prices soaring by more than 40%. In November 1973, US President Richard Nixon announced the implementation of anti-crisis measures. In 1974, in Paris, under the aegis of the Organisation for Economic Cooperation and Development, the creation of the International Energy Agency was announced, the purpose of which was to counter OPEC.

The 1973 crisis also highlighted the need to strengthen energy security and diversify each country’s energy portfolio. Many states began to develop their own energy resources and invest in the research and development of new technologies in order to reduce their dependence on oil imports. International cooperation also became a key factor after the 1973 crisis. Various countries began to work together to develop common policies for energy security, reducing dependence on oil and attracting investment in the development of alternative energy sources.

Is a new “oil crisis” possible?

The current escalation of the Palestinian-Israeli conflict has renewed a talk of the possibility of a new energy crisis. After a rocket attack on the Al-Ahli Al-Maadani hospital, located in the Gaza Strip, Iranian Foreign Minister Hossein Amir-Abdollahian called on the authorities of Islamic countries to introduce an oil embargo against Israel. Turkey also stated that all energy projects with Israel must be suspended, but the main oil supplies to Israel from Azerbaijan via a pipeline to the Turkish port of Ceyhan still continue. Later, a similar statement was made  by Secretary General of the Lebanese Hezbollah movement Hassan Nasrallah. On November 11 and 12, at the extraordinary summit of the League of Arab States and the Organisation of Islamic Cooperation, held by Mohammed bin Salman, the Crown Prince of the Kingdom of Saudi Arabia in Riyadh, Algerian President Abdelmadjid Tebboune urged the use oil of and the economic opportunities provided by Arab countries to exert pressure to stop the conflict, as part of a plan to counter Israeli aggression in the Gaza Strip.

All these proposals were rejected, since they would not have led to tangible results. Even if the OIC countries imposed an embargo, oil supplies to Israel would be compensated by the United States. Fatih Birol, head of the International Energy Agency, in response to a question about the consequences of a potential oil embargo, said that “the world is much better prepared than 50 years ago. We know exactly what to do and where to run.” IMF statistics confirm the words of the head of the IEA, stating that in 1973 the world economy needed 3.5 times more oil to function than in 2023.

After the oil crisis of 1973, significant work was done to correct the mistakes, making it possible to diversify energy sources. The coal, gas and nuclear industries are strong around the world, and the US is now the world’s largest oil producer and exporter. The rate of economic growth of Western countries is also important. As we noted above, during the oil crisis of 1973 there was significant growth in the world economy, but now the situation is different. In developed countries, the economy is slowing down, and growth rates, according to the IMF, will not exceed 1.5% in 2023. Anti-Russian sanctions hit hard  the data indicated, since the economies of developed European countries are in stagnation, There is an increase in inflation and a decrease in production.

Thus, analysing the current situation, we come to the conclusion that the possibility of introducing an “oil embargo” has been eliminated due to its unprofitability and ineffectiveness. The current escalation of the Palestinian-Israeli conflict demonstrates the lack of unity among Arab and Islamic countries on the issue of pressure on Israel and its Western allies. This is due to a number of reasons.

For example, the issue of ensuring the security of the countries themselves is very much tied to relations with the United States and other Western countries. Western military bases are still located in the Middle East and North Africa region, which could pose a threat to the statehood of Arab countries in the event of a conflict with the United States and its allies. We should not forget about the technical equipment of the armies of the countries of the region; they are mainly equipped with Western weapons. The situation is similar in the sphere of trade and economic relations. The countries of the region are closely connected with the West in terms of finance and technology, which are necessary for the development and implementation of megaprojects in the UAE, Qatar, Egypt, Saudi Arabia and other countries.

Although the conflict is still escalating in intensity, primary analysis shows the reluctance of the countries in the region to use “oil weapons” due to their ineffectiveness and high risks for the economy and political stability of the initiators themselves. We are witnessing the collapse of the old world order, which is characterised by the growth of anti-Western sentiments in the countries of the “world majority” and the growing confrontation between the West and the countries of the “Global South”. The October 7 crisis has become another fault line in which many contradictions are concentrated. Therefore, after the liquidation of the old order of international affairs, a struggle will unfold for a new world in which the “weapons of oil” can play a role, since at stake there is not just the future of the Palestinians and the Palestinian state, but the future of the countries themselves.

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