Chapter 29: The Oil Weapon

The 1970s introduce the new term that exist still today- “energy crisis.” During the early 70s, the crisis was largely due to the growing fragility of the marketplace combined with conflict. In WWII, we learned how oil supply influenced the war by impacting how the countries fought. But in the 1970s, we learned how a local war could have global impact through the role of oil. The greatest conflicts of that time were the Arab-Israeli engagements.  

Because the US was seen as an ally to Israel, it got caught up in the conflict. Oil was now, itself, a weapon, used to drive policy and get concessions. A friend of Israel was an enemy to the Arab states and therefore vulnerable to attack. The most effective use of the weapon was production cutbacks more so than embargos. A country can get around an embargo by moving oil from countries that aren’t embargoed to those that are. But the producing countries realized that it was more effective to simply reduce production so there is not enough oil to move around.  

This period saw the end of 12-year surplus and a shift from the 30-year post-war way of doing business to this new world where the power was seated with the producing countries, and they knew it! Unfortunately for the US, the Watergate scandal introduced doubt in the minds of other countries about American leadership, and this further emboldened the producing countries. It also did not help that we ignored the warning signs leading up to the early 1970s, and we found ourselves vulnerable in terms of reliable supply of foreign oil, and not enough production in the US. The two diagrams below show the great shift from restricting foreign oil to support domestic producers, to importing as much as possible to have enough.  

Quotas Illustrated

Credit: Quotas Illustrated by K. Jensen © Penn State is licensed under CC BY-NC-SA 4.0(link is external)

Importing Oil into the United States 

Credit: Importing Oil into the United States by K. Jensen © Penn State is licensed under CC BY-NC-SA 4.0