1973 Oil Embargo Case Study

During 1973 Arab-Israeli War, the United States had provided Israel with arms and supplies. The Arab members of the Organization of Petroleum Exporting Countries (OPEC) responded by placing an embargo on oil against the United States. This embargo banned petroleum exports towards the U.S. and also led to large reductions in their oil production. OPEC used their “oil weapon” to gain leverage for post-war peace negotiations and stabilize their incomes by raising world oil prices. Several years of negotiations between the Arab oil-producing nations and oil companies had already damaged the oil-pricing system, which worsened the embargo’s effects. Between October 1973 and January 1975, The U.S. endured the infamous first oil crisis as the world

economy which had grown increasingly dependent on foreign oil. This triggered the U.S. to attempt to address the foreign policy challenges emanating from long-term dependence on foreign oil. In April 1974, the Nixon administration announced a new energy strategy to boost domestic production to reduce U.S. vulnerability to oil imports and ease the strain of nationwide fuel scarcities. This led to the establishment of the U.S. law called the Emergency Petroleum Allocation Act (EPAA), which required the President to ensure fair distribution of available petroleum products, to establish fair prices, and to preserve the independent segments of the oil industry (Clark, 2014). As oil price controls held down domestic petroleum prices, demand increased to record levels in 1975. President Gerald Ford created a comprehensive approach to this federal energy issue by

Over the past decade, the United States has increased its oil production more than ever before (Ashford, 2015). New technologies, such as hydraulic fracturing or “fracking”, have enabled the extraction of oil and natural gas in previously inaccessible areas. These technologies have enabled the U.S. to become the world’s largest producer of natural gas and oil. The nation’s demand for oil has been met which led to a large decrease in oil prices and resulted in a surplus of oil throughout the country. If producers are instead able to export their excess crude oil to other countries, they would likely continue to increase their production, which would lower global oil prices. A massive increase in world demand is predicted as hundreds of millions of the world’s poor are finally enabled to achieve a decent standard of living. Therefore, in the future, the U.S. is able to produce and supply towards an indefinite global demand for oil as seen in Figure