The Oil Crisis (1973)

In 1973, the world was gripped by a fear that finite energy sources were running out.

The Arab oil producers became aware that their oil reserves might run out in 100-200 years and tried to slow down consumption rates in order to ensure the long-term prosperity of the Middle East. They decided to double the price of crude oil, with a view to inhibiting Western consumption.

This well-intentioned move was a failure. The oil-dependent economies of the West were unable or unprepared to make this adjustment, and went on consuming at the same rate, but paying double. The oil producers doubled the price of oil again about one year later, and this still did not reduce consumption.

The effect was simply to weaken the Western economies, while flooding the Arab producers with untold wealth. The Arabs did not know what to do with it, so much of it ended up in banks. The world Bank, flooded  with Arab oil money, was similarly embarrassed and looked around for projects that required large-scale investment. The result of that was a number of multi-million dollar schemes in less economically developed countries, schemes that sounded as if they would assist development but which instead created a huge burden of debt.

In the United States, President Nixon ended the oil import  quota that had been in place since 1953, and created tax incentives to subsidize the oil industry´s oil exploration programme.

Nixon urged Americans to use coal, even if it caused atmospheric pollution, and also to save energy. Nixon told Congress, “America faces a serious energy problem. While we have  percent of the world´s population, we consume one-third of the world´s energy output. The supply of domestic energy resources available to us is not keeping pace with our ever-growing demand”.

America demand was running at 17 million barrels per day, while domestic production (from American oilfields) was 11 million barrels per day.

Part of the anxiety was to do with the prospect of becoming dependent, one day, on foreign supplies of oil. The spectre of political dependence on an unstable Middle East loomed. And here was the ultimate explanation for American interest in the Middle East, and for seeking to control Middle Eastern states.

In Britain too, people were encouraged to save electricity in every way possible. As oil prices rose, competitor resources looked more favourable. In many countries coal was the obvious alternative.  In Britain, that did not happen. For political reasons, the British government wanted to wind up the coal industry.  So, even though there were reserves of coal underground in Britain to last 300 years, the pit closures continued.

Environmental organizations publicized the idea that many of the world´s oilfields would run dry in the space of 25-50 years. Eventually it emerged that this scare story originated in a misreading of oil geologist´reports. The oil companies had commissioned a survey to check that there were sufficient oil reserves to supply the industry for the next 50 years.

What geologist did was just that, and they reported back that there was enough oil in the world to sustain consumption at current levels until 2025.  For some reason it took 20 years for this error to emerge and be corrected. It was a hue and cry for nothing. Perhaps it suited the oil companies to have this mistake aired, as it seemed to justify raising prices.

The scarcer the resource, the higher the price that could be charged for it. 

Meanwhile, in 1974, there was a world economic recession following the oil price rises.
Transport cost rose and therefore the retail prices of most goods. In the United States, the Consumer Price Index rose 12 percent, compared with around 2 or 3 percent in most previous years.

One positive outcome of the energy crisis was that people started looking more seriously at the possibility of using renewable sources of energy, such as wind, solar an tidal energy. Architects looked more closely at ways of designing energy-saving houses; better insulation and double-glazing were to make a huge difference not only to energy consumption but to people´s domestic comfort.