A Short History of Oil Crises | History Hit

A Short History of Oil Crises

Oil quite literally makes the world as we know it turn. Shortages or rising prices unsurprisingly cause panic: but what causes them? We delve into the history of how and why oil crises have come about in the past, the impact they've had, and their legacy in the modern world.

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A 1951 map of Middle East Oil by the CIA.
Image Credit: Public Domain

The importance of oil in modern economic and political terms cannot be underestimated. Ever since the early 20th century, oil (and in particular petroleum and kerosene) has become the dominant energy source across the world, powering everything from cars and domestic heating to huge industry titans and manufacturing plants.

Those who have oil reserves wield a huge amount of power over our oil-centred energy systems, and those who buy oil are (often) cripplingly dependent on the market, and the diplomatic relations which drive it.

Following the formation of OPEC (the Organization of the Petroleum Exporting Countries) in 1960, Western nations in particular have become all too aware of their need to maintain good diplomatic relations with oil-producing countries. When tensions flare within OPEC or externally, the market fluctuates and oil can quickly become an even more precious commodity. Here’s a brief overview of some of the major oil crises of the past century.

1973

The majority of states with oil reserves in the Middle East are Arab, and by extension, Islamic. The Yom Kippur War of October 1973 saw Arab forces launch an attack against Israel: one in a long line of Israeli-Arab conflicts which had dogged the region since the foundation of the State of Israel in 1948.

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Recognising Western reliance on Middle Eastern oil reserves, oil became weaponised by Arab nations as many of them proclaimed an oil embargo on nations which were perceived to have supported Israel in the war.

As a result, the price of oil rose nearly 300% in less than 6 months, crippling the world’s economy. Gasoline and heating oil were rationed in some countries: in America, some states asked citizens not to use Christmas or commercial lightings, and President Nixon asked petrol stations not to sell gasoline from Saturday night through until Monday morning.

The crisis affected industry more than the average consumer however: factories ground to a halt and there were major concerns about defence systems staying up and running.

Unsurprisingly, the crisis led countries to begin looking for alternative energy sources, driven by a concern that something similar would happen again. Domestic fossil fuels and nuclear power became two sectors which developed significantly in the aftermath of the crisis: renewable energy sources were still not considered viable alternatives at the time.

1979

At the end of the decade, the world was hit by another oil crisis, this time sparked by the Iranian Revolution. As the country was thrown into political turmoil, oil production rates dropped, leaving the world’s oil supply 4% smaller than before. Panicked by this, the demand for crude oil shot up, with the price of a barrel over doubling.

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Although oil production resumed in Iran, it remained inconsistent, and the Iran-Iraq War further worsened supply as both countries’ production dropped. Once again, with the memory of the 1973 crisis etched in people’s memories, queues quickly began appearing at gas stations and many politicians suggested gas rationing to combat the increased demand.

Whilst attempts had been made to reduce dependence on the oil produced by OPEC, efforts to make more permanent switches were still ongoing. By the mid-1980s, OPEC’s market share of oil had dropped by over 20%.

Significant changes were also made to what was known as the automobile fuel economy. In the 1970s, big, gas-guzzling cars were all the rage: they were also the worst hit by oil shortages. Car manufacturers began to fit fuel-saving devices and push smaller, more economical models. Speed limits and expensive fuel had made the so-called golden age of American motoring re-think its priorities.

1990

The often volatile politics of the Middle East have long been one of the drivers of the instability of global oil prices: in 1990, Saddam Hussein’s Iraq invaded its neighbour, and fellow OPEC member, Kuwait. The price of oil over doubled in the space of a few months as a result.

Iraq had claimed Kuwait was stealing its oil: the true motives for the war were somewhat more complex, but they centred around oil profits. Although swift intervention by the United States prevented the worst, the withdrawing Iraqi forces enacted a scorched earth policy, setting fire to Kuwaiti oil fields as they retreated.

These fires raged for several months, severely damaging Kuwaiti oil revenue (and skewing the global market for oil) as well as causing serious environmental damage.

One of the Kuwaiti oil well fires in 1991.

Image Credit: EdJF / CC

2008

The mid 2000s saw more fluctuation in the oil market: tensions in the Middle East, fluctuating diplomatic relations, rising demand from emerging economies like China and growing concerns over diminishing oil reserves.

These concerns were reflected in the price of oil and came to a head in July 2008, when the price peaked at $147.30 per barrel, having risen five-fold in five years. As with earlier crises, the price of petroleum rose dramatically, affecting ordinary people as well as heavy industry.

Sarah Roller

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