October 17, 2023


The Oil Revolution

The myths and realities of the oil price shock of 1973

The abrupt quadrupling of the oil price in the final months of 1973 is widely held to have marshalled the end of “a golden age of world capitalism.” Eric Hobsbawm’s standard-setting interpretation defines 1973 as the turning point when the world “lost its bearings and slid into instability and crisis.”1 Though Hobsbawm’s assessment was overwhelmingly skewed towards the global North, the radical changes that occurred in the oil market that year were no doubt both of immediate and longer-term global significance.

The events of 1973 precipitated the emergence of the “energy question,” never before positioned at the heart of public discourse. In 1974, most industrialized countries joined the Paris-based International Energy Agency (IEA) in order to coordinate their policies and react to excessive oil dependence. They created special national administrations to manage energy plans, such as the US Department of Energy, which was established in 1977. In 1981, the UN held a global Conference on New and Renewable Sources of Energy in Nairobi. The drive for greater “energy efficiency” led to improved standards for automobile engines and building insulation, while the scramble for “alternative energies” caused profound changes in the global energy mix, with the decline of oil and rise of coal, natural gas, and nuclear energy. Even “renewable” energies such as wind and solar entered the policy debate during this time.

The origins of the shift, however, are still little understood. In the oil-importing West, the events of late 1973 are commonly referred to as the (first) “oil shock,” rooted in the pervasive myth that oil prices shot up because the Organization of the Petroleum Exporting Countries (OPEC) allegedly “embargoed” its oil shipments to the West in an attempt to support Egypt and Syria in their “October war” against Israel. In other versions, oil prices shot up because the “Arab members of OPEC” established an embargo on the countries that supported Israel. In these retellings, the quadrupling of oil prices is seen as an exogenous “shock” to industrialized countries, induced by an irresponsible, Arab-led act of sabotage. 

Oil-exporting countries, Arab and non-Arab alike, refer to this moment as the “oil revolution.” All public declarations by OPEC ministers at the time—in addition to the now available minutes of their confidential meetings—suggest that member states sought to boost their economic development (and to some extent, their citizen’s welfare) in the context of the global anti-colonial movement.

OPEC did in fact raise the price of oil, but not as a result of the Yom Kippur War. Rather, the price hike was prompted by ambitious developmental projects, the devaluation of the US dollar, and the end of the gold-dollar standard. Member states sought to halt the perceived “overconsumption” of oil that would deplete their reserves “too rapidly.” The events of 1973 were not the result of a purely exogenous “supply shock,” but rather a response to the crisis of the post-war global economic order.

The “oil weapon”

Most accounts of the abrupt quadrupling of oil prices conflate OPEC’s price hike with the use of the “oil weapon” by a group of Arab governments in the context of the Arab-Israeli War. In late 1973, there in fact was an Arab “embargo” on the US and other countries linked to the war, and it did have some effect on oil prices. However, this policy was unrelated to the dramatic price increases which shook the world.

Arab countries used oil as a “weapon” to resist Israeli expansion on three occasions before 1973. The first was in 1948, when Iraqi authorities shut off the pipeline carrying Iraqi oil to Haifa. The Trans-Arabian pipeline, which was meant to connect the newly developed Saudi oil fields to the Mediterranean through Jordan, Syria, and Lebanon, was also delayed, and the Arab League created its permanent Petroleum bureau in 1953. Three years later, the Egyptian government’s closure of the Suez Canal the Egyptian government’s closure of the Suez Canal during the second Arab-Israeli War instilled the fear of an impending oil supply shortage in Western Europe. Jean Monnet half-jokingly claimed that Egyptian President Gamal Abdel Nasser was the real “federator of Europe,” speeding up the creation of the European Economic Community (EEC) in 1957.

In response to the Six Day War, Egypt blocked the Suez Canal for from 1967 to 1975. On the second day of the conflict, Arab oil ministers met in Baghdad and engaged in a tirade against the US, Great Britain, Israel, and the international oil companies that monopolized production in the Gulf. Their embargo, however, proved to be ineffective due to the spare capacity of non-Arab producers like the US, as well as the deployment of new super-tankers which could circumnavigate Africa. In late August 1967, the Arab League announced a “three no” policy: no peace, no recognition, and no negotiation with Israel. Nonetheless, its public statement displayed a softer view on oil production:   

The summit conference has come to the conclusion that the oil pumping can be used as a positive weapon, since oil is an Arab resource which can be used to strengthen the economy of the Arab States…The conference has, therefore, decided to resume the pumping of oil.2

After 1967, Saudi Oil minister Zaki Yamani led the effort to create a new entity—intended to be autonomous from the “non Arab” OPEC and resistant to the pressures of Anglo-American companies in Syria, Iraq, and Algeria. On January 8, 1968, the Organization of the Arab Petroleum Exporting Countries (OAPEC) was founded by the monarchies of Saudi Arabia, Kuwait, and Libya. Abu Dhabi, Qatar, and Bahrain were quickly selected for admission. According to a British diplomat, this is how Yamani explained the rationale for OAPEC:

It was something new in the oil world: an organization dedicated to the proposition that oil affairs should be separated from politics and that the consuming countries, as well as producers, had legitimate interests. These he [Yamani] would define as a reasonable price and—above all—security of supplies. The hand of OAPEC, he went on, was stretched out in cooperation; and he hoped that the consumer countries, as well as the oil companies, would grasp it.3

Despite voicing a desire to separate oil and politics, OAPEC unsheathed the oil weapon in 1973. With the 1969 revolution in Libya that brought Muammar Gaddafi to power and the 1971 nationalization of the oil industry in Algeria, the Arab world had radicalized, and Britain lost its grip “East of Suez.” In December 1972, the International Union of Arab Workers asked Arab governments to place an economic boycott on the US. In Cairo, the economic committee of the Arab League examined ways to use petroleum to force the US to modify its stance on the Arab-Israeli conflict. In 1973, the Kuwaiti National assembly approved a resolution asking Arab states to freeze oil production in case of a war against Israel, and by May 15 of that year, Iraq, Kuwait, Algeria, and Libya turned off the oil tap in protest of Israel’s Independence Day. During a meeting in Geneva later that year, top executives of Aramco—the daughter company of Chevron, Exxon, Texaco and Mobil, which operated the Saudi oil fields—listened as King Faisal threatened to withdraw their concession if the US government did not change its pro-Israeli stance. By this point, the market had become “tight,” and Arab producers believed they stood a better chance to make political use of their threats.

On October 6, 1973, war broke out again during the holy festivity of Yom Kippur in Israel. A coordinated surprise attack on Israeli defenses allowed the Egyptian and Syrian armies to momentarily recover some of the territories in the Sinai and Golan that Israel had occupied during the Six Day War. The Arab public was galvanized, but in the hectic days that followed, the US government set up a massive airlift to resupply Israel’s armed forces. The Israeli Defense Forces withstood Arab advances and put up successful counteroffensives in both the North and the South. By October 15, Israeli tanks threatened Cairo and encircled Egypt’s Third Army on the Eastern Bank of the Suez Canal.

On October 17, OAPEC members convened in Kuwait to announce a 5 percent production cut for the following month, to be complemented with further cuts every passing month until “the evacuation of Israel from the territories occupied during the 1967 war and the restoration of Palestinian rights.”4

That same day, Abu Dhabi’s minister of petroleum, Mana Al-Otaiba, announced that his government would also institute a total embargo on oil shipments to the United States, arguing that “oil is not more valuable than Arab blood.” Saudi Arabia, along with the rest of OAPEC would follow suit a few days later, singling out the US for the Nixon Administration’s decision to ship $2.2 billion in aid to Israel. The embargo was eventually extended to the Netherlands, Portugal, Rhodesia, and South Africa, with the hopes of garnering support from the broader Third World anti-imperialist coalition.

By late October 1973, however, a ceasefire led OAPEC’s position to shift. At a meeting in Kuwait City on November 4, OAPEC opened the way to fully resume supplies to “friendly countries” such as France. In March 1974, after a series of contentious OAPEC meetings in Vienna and Cairo, both the production cuts and the embargo on the US and the Netherlands were officially lifted. While OAPEC’s measures placed Palestine at the center of international politics, the production cuts and selective boycott had much more limited effects on the oil market. US economist Morris Adelman argued that:

over the three months October through December, total lost output […] was less than the inventory buildup earlier in the year. Considering as well some additional output from other parts of the world, there was never any shortfall in supply.5

According to most calculations, the volume of oil traded in world markets declined between 5 and 13 percent for the five months when the production cuts were in place.6 The oil price hike of late 1973 was thus disproportionate to the production cuts, especially given the countermeasures taken by several importers to “save energy.” Of course, “high prices” outlasted the end of the production cuts by several years. This is where OPEC’s role becomes pertinent, in many ways that bear very little relationship to the Arab-Israeli conflict.

The price revolution

On October 16, 1973, the day before the OAPEC meeting, the representatives of Saudi Arabia, Kuwait, Abu Dhabi, Qatar, Iraq, and Iran also met Kuwait City as an OPEC sub-committee to announce their historic decision to raise, for the first time unilaterally, the posted price of crude oil by 70 percent, from $3 to 5.11 per barrel. In December, OPEC delegates decided to redouble once again the reference price to $11.65 per barrel. This meeting was held in Tehran—Iran was not involved in the Arab-Israeli conflict, had raised its production levels in 1973, and was a supplier of Israel. The resolution bore only an indirect relationship to the regional turbulence.

The Saudi minister Zaki Yamani and his Algerian colleague Belaid Abdessalam repeatedly claimed that the OPEC price hike was unrelated to the war in the Middle East during their diplomatic tours of Western capitals. The minutes of the available OPEC conferences from late 1973 and early 1974 show that there were few mentions of the Arab-Israeli conflict at the meetings. As Anthony Sampson notes in The Seven Sisters: “the price-hike and the embargo […] proved a deadly combination to the West. But the coincidence, surprisingly enough, was accidental.”7

Market conditions facilitated OPEC’s decision. By the early 1970s, industrialized countries realized that an “energy crisis” was in the making: demand was up in both the US, Japan and Western Europe, Texas was pumping at full speed for the first time since the 1930s, and US consumers were experiencing natural gas and gasoline shortages. Between 1970 and 1973, the Nixon administration put further strain on the international market by phasing out the mandatory oil import controls which had protected US domestic producers since 1959.8 Acknowledging an inconvenient truth, Secretary of State William P. Rogers wrote to Nixon:

Unless present trends are reversed, the United States by 1980 will be producing little more oil than it produces today while consumption will rise from 15.8 million barrels per day in 1971 to 24 million barrels per day in 1980. At that time we will be forced to import half our petroleum needs, largely from the Arab States, which contain at least two-thirds of the non-Communist world’s oil reserves.9

Given such changing market composition, an oil price increase was virtually unavoidable. But OPEC’s actions were a crucial component. The coordinated effort by oil exporting countries— the “petrostates”—to increase their income from petroleum had been at the origin of the very creation of OPEC. The organization’s precursor was a gentleman’s agreement reached at the margins of the first Arab Petroleum Congress in Cairo in 1959. OPEC formally came into existence in Baghdad in September 1960. Its founding members were Venezuela, Saudi Arabia, Iraq, Iran, and Kuwait, with Pérez Alfonzo of Venezuela elected as its first chairman. At OPEC’s first recorded Ministerial Conference in 1961, he argued:

It is not possible to ignore the relatively low price at which this exhaustible product is sold to the richer nations. Our peoples cannot let flow, at an accelerated rate, their only possibility to pass without delay from poverty to well being, from ignorance to culture, from instability and fear to security and confidence.10

For the remainder of the 1960s, an oversupplied international oil market remained dominated by consumers and by the international oil companies. Yet crucially OPEC countries managed to increase their share of revenues per barrel of oil through minor increases in tax rates and by forcing oil companies to accept posted prices that were higher than the market price. In the late 1960s, as global criticism of Western imperialism grew with the Vietnam war, and Arab public opinion began to challenge the Arab leaderships after their defeat in the Six Days War, the petrostates renewed their activism.

In December 1968, OPEC was revitalized with a Declaratory Statement of Petroleum Policy that demanded the control of posted prices, the “relinquishment” by the western multinationals of those areas that had not been productively exploited, and direct participation in oil concessions. In 1969, the revolution in Libya and the Algerian decision to join OPEC strengthened the front of those exporters who wanted more than “participation” in the concessions—they sought nationalization. In February 1971, Algeria became the first OPEC country to take this momentous step, announcing state control of 51 percent of the Algerian oil industry, which had remained under the control of French companies after independence.

Other OPEC states soon followed through full nationalization or majority participation (this includes Venezuela, which nationalized oil in 1975, even though Hugo Chavez is frequently credited for the decision). With nationalizations of the old mining “concessions” inherited from colonialism, OPEC governments placed themselves among Third Worldist governments hoping to assert control of their commodities. Algerian President Houari Boumedienne, for instance, invoked the need for a New International Economic Order before the UN General Assembly in 1974 and the Solemn Declaration of the first Summit of OPEC Heads of State in 1975.

At the same time, the oil market was shifting from a “consumer’s market” to a “producer’s market.” Demand for raw materials and energy was rising at impressive annual rates of more than 7 percent a year, particularly in Western Europe, due to wage increases and welfare spending. There were also difficulties on the supply side caused by the closure of the Suez Canal after the 1967 war, the bombing of the Trans-Arabian Pipeline, and the apparent (and momentary) “peak” in production capacity reached by the world’s largest oil producing country (United States) and the world’s leading exporter (Venezuela). This new balance was reflected in the 1971 Tehran and Tripoli negotiations on posted prices between OPEC and the international oil companies, and then in the “Geneva” agreements of 1972 and 1973 to adjust posted prices to dollar devaluation. By 1973, OPEC countries had already achieved significant increases in posted prices, resisted the sell-out of their oil to a weakening and no longer gold-backed US dollar, and begun to take full control of the oil industry. The October-December unilateral quadrupling of prices was only the completion of this process.

Fifty years later

At an OPEC ministerial conference in January 1974, the Iranian minister and oil heavyweight Jamshid Amouzegar summarized the four key considerations behind the oil price figure of $11.65 per barrel: first, the belief that oil exporters would one day have to import high-cost energy from other sources, as shale oil or liquified coal; second, the need to maintain the purchasing power of oil; third, the desire to protect the “intrinsic value” of oil, which was too precious to be burned; and fourth, the fact that oil had the advantage of not being merely an energy source but also a raw material for the petrochemical industry. Ahead of Amouzegar’s remarks, the Shah made it clear in December 1973 that the new OPEC consensus was that oil was a “noble product” that would “run out in thirty years time.”

Thus, the price agreed upon in Tehran aimed at corresponding to “the minimum price that we will have to pay either to get the shale oil or liquefaction of coal or gasification of coal.” In a very favorable and unstable oil market, the OPEC price level served to promote internal industrial development, acknowledge the value of oil as the world’s most important energy source, and avoid the “overconsumption” or “economic waste” of a natural resource that was to vital not just to consumers, but possibly even more to citizens of petrostates.

Whatever its political success, the embargo was economically a failure: other oil exporters (including from within OPEC) picked up the market share which OAPEC states voluntarily lost, and the selective embargo proved unworkable. Not surprisingly, 1973 would be the last time Arab exporters would coordinate an attempt to use oil politically. But by associating the quadrupling of oil prices with the embargo, the prevailing narrative positions the “oil revolution” as an exogenous shock and shifts emphasis away from the deep-rooted crises at the heart of the global economy. It perpetuates the notion that the inflationary wave of the 1970s was the result of a supply shortage, rather than a response to the 20 percent devaluation of the US dollar with the end of the gold standard.

Conflating these two policies also obscures the deeper political meaning of OPEC’s “oil revolution”: a developmental vision which demanded a radical restructuring of North-South economic relations as the ultimate aim of decolonization. Over the next decade, this attempt was also doomed to fail. A successful neoliberal counteroffensive led by the US and the UK provided a decidedly different way out of the crisis of post-war capitalism; a debt crisis divided the Third World.

Nonetheless, the oil shock must be understood through its socio-economic and anti-colonial origins, reminding us of the long history of efforts to reform Bretton Woods and the international monetary system. Today, the economic, geopolitical, and environmental costs of the fossil fuel economy—and its alternatives—have only gotten higher. Remembering the “oil revolution” of 1973 illuminates the central role of these petrostates in contemporary realignments of global economic governance.

  1. Eric J. Hobsbawm, Age of Extremes. The Short Twentieth Century (London: Abacus, 1994), 403.

  2. Arab League, Khartoum Resolution, 1 September 1967, available at Avalon Project, https://avalon.law.yale.edu/20th_century/khartoum.asp, cited 11 October 2023.

  3. British Embassy, Kuwait, October 1, 1968, in: A.L.P. Burdett (ed.), OPEC: Origins & Strategy 1947–1973, Vol.4: 1967–1971 (Cambridge: Cambridge Archives Editions, 2004).

  4. A useful source for official documents on the 1973 embargo: SIPRI, Oil and Security, (New York: Humanities Press, 1974).

  5. [1] Adelman, M., (1995), The Genie Out of the Bottle: World Oil Since 1970 (Cambridge: MIT Press, 1995).

  6. See Vitalis, Oilcraft, chap. 3.

  7. Sampson, The Seven Sisters, Bantam, 1976, p. 252.

  8. These import controls were in fact a key reason for the creation of OPEC.

  9. FRUS 1969–1976, vol. XXXVI, Energy Crisis, 1969–1974, Doc. 116, Memorandum From Secretary of State Rogers to President Nixon, Petroleum Developments and the Impending Energy Crisis, Washington, March 10, 1972.

  10. NYUAD Library, Archives and Special Collections (ASC), Giuliano Garavini Collection (GGC), MC-038, Minutes of the Second Meeting of OPEC, Caracas, January 15–21, 1961.

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