The Oil Crisis of 1973Posted: March 13, 2012
The oil embargo of 1973 was a retaliatory act by the Organization of Petroleum Exporting Countries (OPEC) against theU.S.for helping Israel in the Arab-Israeli conflict. Less than two weeks after the U.S.got involved in the conflict, OPEC announced that it would increase the price of oil by 70 percent and imposed an embargo that cut oil production by 5 percent from the previous month. The organization stated that production would be cut an additional 5 percent each month until specific political and economic objectives were met. At the time, theU.S.was importing 35 percent of its oil supply. The price of oil went from $3 to $5.11 overnight. Within three months, the price had risen to $11.65 per barrel.
Approximately 85 percent of Americans were driving to and from work every day, which meant the oil shortage was an incredibly effective retaliatory act. President Nixon urged Americans to turn their thermostats down and asked businesses to cut work hours to conserve energy. He also instructed gas stations to ration gas purchases to 10 gallons per customer and banned gasoline sales on Sundays. Nixon also proposed an extension to the current Daylight Savings Time period, which meant Americans needed to use less electricity to light their homes in the evenings.
Perhaps the most important initiative to come out of the oil crisis of 1973 was the approval of the Trans-Alaskan pipeline. Congress approved the pipeline in November 1973 and it was completed in 1977. Once completed, the pipeline would supply theU.S.with 2 million barrels of oil each day.
Although the Trans-Alaskan pipeline would eventually allow the U.S.to rely less on foreign oil sources, through the remainder of 1973 and into 1974,Americafell into a recession. Gas quadrupled in price and, although oil stock profits rose significantly, the Dow Jones fell 15 percent.