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The Oil Crisis

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By Fiona Venn

In October 1973, the Organization of Petroleum Exporting Countries
(OPEC) decided unilaterally to end the oil corporations’ monopoly
over crude oil prices and production levels, and immediately set a price
considerably in excess of the prevailing norm. In the same month, a war
broke out between Israel and the neighbouring Arab states: in order
to support the Arab cause, a number of leading Arab oil producers
announced a selective boycott of oil supplies, coupled with a progressive
cut in production levels. In the aftermath of these two separate
decisions, oil prices soared, the traditional role of companies within the
international oil industry changed, and the incomes of the major oilexporting
states increased severalfold. The petrodollar became an
important element in the world economy, and Western companies
competed for the contracts available for the rapid further development
and modernization of the newly affluent oil states. Meanwhile, the vast
rise in the price of oil caused further problems for the economies of
the industrialized world, already suffering from inflation. Even when
the real price of oil began to decline later in the 1970s, the power over
pricing and production decisions still remained with the producer
governments rather than the oil companies. In 1979 the Iranian
Revolution triggered a worldwide panic about oil supplies that again
pushed up prices severalfold and dealt a further blow to the developed
economies.
Although both crises had a transforming effect upon the international
political economy, it is the first, in 1973, whose date is commonly used
as a shorthand reference point for a moment of transformation. In
histories of the world economy, the Middle East and the oil industry,
‘1973’ is used as a synonym for a moment of crisis and change. Many
commentators and politicians at the time regarded this apparently massive
upset in traditional sources of power within the world economy and
the oil industry as heralding an irreversible – and regrettable – change.
In examining elements of both continuity and change in a number of
different political and economic spheres, this study will cast doubt upon
some of the more exaggerated conclusions and predictions of contemporaries,
and emphasize the many aspects of the international political
economy that have remained remarkably unchanged since 1973.
Nonetheless, the magnitude of the perceived changes suggests, rightly,
that while the oil crisis might not have had the degree of influence and

change that some maintained at the time, nonetheless it accelerated
existing forces for change and acted as a catalyst to such an extent that
the use of the term ‘turning point’ is indeed justified.
In a personal respect, also, the 1973 oil crisis was indeed a significant
turning point. In October 1973, as a fledging doctoral student, I was
struggling to find a topic within Anglo-American relations upon which
to base my research and thesis. Fascinated by the turn of events during
that eventful month, I began to examine the historical antecedents of
the petroleum industry in the Middle East, and soon came to realize
that its history provided, in microcosm, an ideal case study for the
protracted process by which the United States replaced the United
Kingdom as the world’s leading capitalist power. The eventual consequence
was my PhD thesis on ‘Anglo-American relations and Middle
Eastern Oil, 1918–34’. My entire career as a historian of oil diplomacy
dates from the October 1973 oil crisis. It is a salutary thought to
realize that those turbulent events, which I recall so well (including the
subsequent economic difficulties and high British inflation rate, which
had a devastating impact upon a postgraduate student seeking to subsist
upon a Department of Education studentship), have now passed into
the historical domain. Yet many of the issues are still alive today: for
that reason, while this discussion centres on the decade of the 1970s, it
also addresses developments until the current day.

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