The Arab members of the Organization of Petroleum Exporting Countries (OPEC) imposed an embargo on the United States during the 1973 Arab-Israeli War to punish the United States for resupplying the Israeli military and to gain leverage in the postwar peace negotiations. OPEC members also extended the embargo to countries such as the Netherlands, Portugal, and South Africa that supported Israel. Oil exports and production were both reduced under the embargo. After several years of negotiations between oil producers and companies, a decades-old pricing system had already been destabilized.
A U.S. economy that had become increasingly dependent on foreign oil was acutely strained by the 1973 Oil Embargo. The efforts of President Richard M. Nixon’s administration to end the embargo signaled a complex change in the global financial balance of power to oil-producing states and triggered a slew of U.S. attempts to address the challenges of long-term dependence on foreign oil as a foreign policy challenge.
OPEC demanded in 1973 that foreign oil corporations increase prices and cede a greater share of revenue to their local subsidiaries. To reduce U.S. dependence on oil imports and ease nationwide fuel shortages, the Nixon administration announced a new energy policy in April. In the fall of that year, that vulnerability became apparent.
The onset of the embargo contributed to an upward spiral in oil prices with global implications. The price of oil per barrel first doubled, then quadrupled, imposing skyrocketing costs on consumers and structural challenges to the stability of whole national economies. Since the embargo coincided with a devaluation of the dollar, a global recession seemed imminent. U.S. allies in Europe and Japan had stockpiled oil supplies, and thereby secured for themselves a short-term cushion, but the long-term possibility of high oil prices and recession precipitated a rift within the Atlantic Alliance. European nations and Japan found themselves in the uncomfortable position of needing U.S. assistance to secure energy sources, even as they sought to disasociate themselves from U.S. Middle East policy. The United States, which faced a growing dependence on oil consumption and dwindling domestic reserves, found itself more reliant on imported oil than ever before, having to negotiate an end to the embargo under harsh domestic economic circumstances that served to diminish its international leverage. To complicate matters, the embargo’s organizers linked its end to successful U.S. efforts to bring about peace between Israel and its Arab neighbors.
Partly in response to these developments, on November 7 the Nixon administration announced Project Independence to promote domestic energy independence. It also engaged in intensive diplomatic efforts among its allies, promoting a consumers’ union that would provide strategic depth and a consumers’ cartel to control oil pricing. Both of these efforts were only partially successful.
President Nixon and Secretary of State Henry Kissinger recognized the constraints inherent in peace talks to end the war that were coupled with negotiations with Arab OPEC members to end the embargo and increase production. But they also recognized the linkage between the issues in the minds of Arab leaders. The Nixon administration began parallel negotiations with key oil producers to end the embargo, and with Egypt, Syria, and Israel to arrange an Israeli pullout from the Sinai and the Golan Heights. Initial discussions between Kissinger and Arab leaders began in November 1973 and culminated in the First Egyptian-Israeli Disengagement Agreement on January 18, 1974. Though a finalized peace deal failed to materialize, the prospect of a negotiated end to hostilities between Israel and Syria proved sufficient to convince the relevant parties to lift the embargo in March 1974.
The embargo laid bare one of the foremost challenges confronting U.S. policy in the Middle East, that of balancing the contradictory demands of unflinching support for Israel and the preservation of close ties to the Arab oil-producing monarchies. The strains on U.S. bilateral relations with Saudi Arabia revealed the difficulty of reconciling those demands. The U.S. response to the events of 1973–1974 also clarified the need to reconcile U.S. support for Israel to counterbalance Soviet influence in the Arab world with both foreign and domestic economic policies.
The full impact of the embargo, including high inflation and stagnation in oil importers, resulted from a complex set of factors beyond the proximate actions taken by the Arab members of OPEC. The declining leverage of the U.S. and European oil corporations (the “Seven Sisters”) that had hitherto stabilized the global oil market, the erosion of excess capacity in East Texas oil fields, and the recent decision to allow the U.S. dollar to float freely on international exchange all played a role in exacerbating the crisis. Once the broader impact of these factors set in throughout the United States, it triggered new measures beyond the April and November 1973 efforts that focused on energy conservation and the development of domestic energy sources. These measures included the creation of the Strategic Petroleum Reserve, a national 55-mile-per-hour speed limit on U.S. highways, and later, President Gerald R. Ford’s administration’s imposition of fuel economy standards. It also prompted the creation of the International Energy Agency proposed by Kissinger.