The sudden rise in oil prices caused inflation and economic recession in oil-importing
countries, leading to changes in monetary and fiscal policies to stabilize economies
and reduce dependence on oil.Prior to the embargo, oil fueled almost half of total
energy consumption in the United States (47.5%) and worldwide (49%). While OPEC
countries produced more than half (53%) of global oil, the concessions were
operated by Western oil majors.
After the embargo, producer states took over. Control of global oil production passed
from Western oil giants like Shell and Exxon to newly formed national oil
companies.Within 15 years of the embargo, production outside OPEC increased by a
massive 14 million barrels per day. Oil from Alaska and the Gulf of Mexico helped
stabilize U.S. production. OPEC’s importance and oil’s share of the global energy mix
– declined. OPEC’s 13 members account for just 36% of global oil production today.
The high oil prices caused by the 1973 embargo created incentives for oil drillers to
diversify their energy sources, investing more in renewable energy, nuclear power,
and domestic oil production to reduce dependence on imported oil. It prompted a
reevaluation of the role of government intervention in the economy and the
importance of diversifying energy sources to mitigate vulnerability to oil price shocks.
CONSEQUENCES
1. Economic impact
The most important consequence of the oil crisis was The drop in prices presented a serious
problem for oil-exporting countries in northern Europe and the Persian Gulf. Heavily
populated, impoverished countries, whose economies were largely dependent on oil—
including Mexico, Nigeria, Algeria, and Libya—did not prepare for a market reversal that left
them in sometimes desperate situations.
Mexico (a non-member), Nigeria, and Venezuela, whose economies had expanded in
the 1970s, faced near-bankruptcy, and even Saudi Arabian economic power was significantly
weakened.
2. DECLINE OF OPEC
OPEC (ORGANIZATION OF PETROLEUM EXPORTING COUNTRIES) soon lost its preeminent
position, and in 1981, its production was surpassed by that of other countries. Additionally, its
own member nations were divided. In an attempt to regain market dominance, Saudi Arabia
raised output, drove down prices, and reduced or eliminated profits for high-cost producers.
3. Oil sources diversification
The embargo encouraged new venues for energy exploration, including Alaska, the North Sea,
the Caspian Sea, and the Caucasus. Exploration in the Caspian Basin and Siberia became
profitable. Electricity generation from nuclear power and natural gas, home heating from
natural gas, and ethanol-blended gasoline all reduced the demand for oil.
4. Energy shortages: The crisis led to energy shortages across the Western world.
5. Alternate energy sources: The crisis WAS ALSO HELPFUL IN SHIFTING TOWARDS alternate
energy sources.
6. Soviet Union: The crisis contributed to the collapse of the Soviet economy, which led to the breakup of
the Soviet system.
CONCLUSION
Countries began to reassess their energy policies, seeking greater energy independence and
diversification of energy sources. This led to investments in alternative energy technologies
and increased focus on energy conservation measure.
Overall, the 1973 oil crisis served as a wake-up call for the world, prompting
significant changes in energy policies, geopolitics, and societal attitudes towards energy
consumption and conservation.
