Oil Crisis: Economics
Oil Crisis When thinking about the 1970s, many words such as hippy, lava lamps, and tie-dye come to mind. However, there was much more going on during this decade than that. The 1970s, for those who lived in it remember having to wait in long lines at gas stations due to gas shortages. This became known as the oil crisis, which occurred in 1973 and 1979. Both of these crises caused a recession. As this comes with any recession, households and firms became uncertain about the future and weary of their dependence on foreign goods and the sustainability of the United States economy. The oil crisis dramatically affected the households and firms in the United States at an aggregate level. I will examine the causes that led up to the oil crisis, the effects on the economy, and the policies enacted in an attempt to stabilize the United States economy. Many believe the cause of the 1973 oil crisis can be contributed to the Arabs and the Organization of Petroleum Exporting Countries (OPEC) placing an embargo on oil. OPEC’s role was to deal with negotiations with oil companies. The cause of the embargo was due to the United States aiding Israel by supplying them with supplies and weapons, which results in the Arabs to lose the gains in the war (Trumbore, 1999; “1970s Oil Crisis”). The countries placed on the embargo included Western Europe, Japan, and the United States. The effect on this embargo was a significant inflation in the price of oil. This was due to the large demand for oil, but small supply (Sill, 2007). While OPEC was still selling oil to the United State’s Western European allies, they increased the cost by seventy-percent. In turn, this caused the “price of a barrel of oil to these nations [to rise] from $3 to $5.11” overnight (Trumbore, 1999, pg. 1). This sent shock waves through our economy. OPEC produced five million less barrels a day, which equates to a reduction in seven percent of the world’s production (Sill, 2007). This decrease in supply