Arab Oil Embargo

Decision by oil-producing Arab nations to cut off the supply of oil to the United States in retaliation for U.S. support of Israel during the 1973 Arab-Israeli War. The Arab oil embargo was the first oil-supply disruption to lead to major price increases and a worldwide energy crisis. The embargo caused the United States and Western European nations to reassess their overdependence on Middle Eastern oil. It also led to far-reaching changes in domestic energy policy, including increased domestic oil production in the United States and a greater emphasis on improving energy efficiency.

On October 6, 1973, Egypt and Syria launched a surprise attack against Israel on the Jewish holy day of Yom Kippur. The Arab forces made early gains across the Suez Canal and Golan Heights, but Israel quickly turned the tide, and within a few weeks, Israeli troops had pushed forward into enemy territory. In an attempt to pressure Western countries to force Israel to withdraw from seized lands, Arab members of the Organization of Petroleum Exporting Countries (OPEC) announced sharp production cuts and then banned the sale of oil to the United States. Until that time, OPEC, which had been formed in 1960, had kept a relatively low profile. It was mainly involved in negotiating with international oil companies for better terms for member countries—often developing nations that felt they were being exploited by the large petroleum companies.

Enmity among OPEC members had risen in the years preceding the embargo as a result of moves made by President Richard Nixon to boost the sluggish U.S. economy. For example, Nixon ordered the release of the dollar from the fluctuating gold standard that had been in place since the end of World War II. The resulting devaluation of the dollar led to financial losses on the part of oil-producing nations, whose revenues consisted largely of U.S. dollars. That move, in addition to Nixon-imposed price controls in 1971, contributed to oil shortages and the closure of many U.S. gas stations even before the embargo. Enormous increases in Western oil consumption—doubling over the previous 25 years or so—also set the stage for the crisis, as people in the developed world had become accustomed to cheap gasoline and relatively stable prices.

After the imposition of the embargo, the price of a barrel of oil quadrupled by 1974. As a result, the United States experienced its first fuel shortage and increase in gas prices (in real terms) since World War II. In response to the embargo, the U.S. government imposed fuel rationing and lowered speed limits to reduce consumption. Recently released documents indicate that President Nixon seriously considered military action to seize oil fields in Saudi Arabia, Kuwait, and Abu Dhabi as a last resort. However, negotiations in Washington led to the lifting of the embargo in March 1974.

The embargo had a far-ranging impact on the psyche of American citizens, who realized that events in the Middle East, coupled with U.S. energy dependency, could have major implications at home. Some analysts, however, feel that those lessons have been short-lived. For example, in recent years, fuel-economy ratings for American-made vehicles have begun to decrease after decades of improvement. In addition, the United States now imports a larger percentage of oil today than it did at the time of the embargo. Many observers are convinced that it will take another shock similar to the embargo to wean Americans from their dependence on imported oil.

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