1973 oil crisis

In October 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) announced that it was implementing a total oil embargo against countries that had supported Israel at any point during the 1973 Yom Kippur War, which began after Egypt and Syria launched a large-scale surprise attack in an ultimately unsuccessful attempt to recover the territories that they had lost to Israel during the 1967 Six-Day War.

In an effort that was led by Faisal of Saudi Arabia, the initial countries that OAPEC targeted were Canada, Japan, the Netherlands, the United Kingdom, and the United States. This list was later expanded to include Portugal, Rhodesia, and South Africa.

In March 1974, OAPEC lifted the embargo, but the price of oil had risen by nearly 300%: from US$3 per barrel ($19/m³) to nearly US$12 per barrel ($75/m³) globally. Prices in the United States were significantly higher than the global average. After it was implemented, the embargo caused an oil crisis, or "shock", with many short- and long-term effects on the global economy as well as on global politics. The 1973 embargo later came to be referred to as the "first oil shock" vis-à-vis the "second oil shock" that was the 1979 oil crisis, brought upon by the Iranian Revolution.

Following the Israeli Declaration of Independence in 1948, there has been conflict between Arabs and Israelis in the Middle East, including several wars. The Suez Crisis, also known as the Second Arab–Israeli war, was sparked by Israel's southern port of Eilat being blocked by Egypt, which also nationalized the Suez Canal belonging to French and British investors. As a result of the war, the Suez Canal was closed for several months between 1956 and 1957.

The Six-Day War of 1967 included an Israeli invasion of the Egyptian Sinai Peninsula, which resulted in Egypt closing the Suez Canal for eight years. Following the Yom Kippur War, the canal was cleared in 1974 and opened again in 1975. OAPEC countries cut production of oil and placed an embargo on oil exports to the United States after Richard Nixon requested $2.2 billion to support Israel's war effort. Nevertheless, the embargo lasted only until January 1974, though the price of oil remained high afterwards.

By 1969, American domestic production of oil was peaking and could not keep pace with increasing demand from vehicles. The U.S. was importing 350 million barrels (56 million cubic metres) per year by the late 1950s, mostly from Venezuela and Canada. Because of transportation costs and tariffs, it never purchased much oil from the Middle East. In 1973, US production had declined to 16% of global output. Eisenhower imposed quotas on foreign oil that would stay in place between 1959 and 1973. Critics called it the "drain America first" policy. Some scholars believe the policy contributed to the decline of domestic US oil production in the early 1970s. The cheapness of oil compared with coal led to the decline of the coal industry. In 1951, 51% of the United States' energy came from coal, and by 1973, only 19% of American industry was coal-based.

When Richard Nixon became president in 1969, he assigned George Shultz to head a committee to review the Eisenhower-era quota program. Shultz's committee recommended that the quotas be abolished and replaced with tariffs but Nixon decided to keep the quotas due to vigorous political opposition. Nixon imposed a price ceiling on oil in 1971 as demand for oil was increasing and production was declining, which increased dependence on foreign oil imports as consumption was bolstered by low prices. In 1973, Nixon announced the end of the quota system. Between 1970 and 1973 US imports of crude oil had nearly doubled, reaching 6.2 million barrels per day in 1973. Until 1973, an abundance of oil supply had kept the market price of oil lower than the posted price.

In 1970, American oil production peaked and the United States began to import more and more oil as oil imports rose by 52% between 1969 and 1972. By 1972, 83% of the American oil imports came from the Middle East. Throughout the 1960s, the price for a barrel of oil remained at $1.80, meaning that with the effects of inflation considered the price of oil in real terms got progressively lower and lower throughout the decade with Americans paying less for oil in 1969 than they had in 1959. Even after a price for a barrel of oil rose to $2.00 in 1971, adjusted for inflation, people in the Western nations were paying less for oil in 1971 than they had in 1958. The extremely low price of oil served as the basis for the "long summer" of prosperity and mass affluence that began in 1945.