The 1973 Oil Crisis and the First Oil Shock
The 1973 oil crisis, also called the first oil shock, began with the Arab embargo of October 1973 and took crude from about $3 to $12 a barrel.
The 1973 oil crisis, also called the first oil shock, began in October 1973 when Arab oil exporters imposed an embargo on the United States and other countries while Gulf producers raised prices sharply. In under five months crude went from about $3 a barrel to $12.[1][4] Its effects reached from filling stations in Oregon to the empty motorways around Amsterdam and the tankers laid up in Norwegian fjords.
How the Pressure Built
Arab producers first tried oil as a political weapon in 1967, during the Six-Day War. That embargo lasted a few months and achieved little.[4] Six years later the market had changed. US output peaked in 1970 and began to fall, and US crude imports nearly doubled between 1970 and 1973, to 6.2 million barrels a day. President Nixon scrapped the import quotas that had stood since 1959 in 1973.[4]
Producers were also gaining ground on the companies. The Seven Sisters' share of output in OPEC countries fell from 86% in 1963 to 77% in 1970, and OPEC raised posted prices through the Tehran Agreement of February 1971.[4] Nixon's closing of the gold window on 15 August 1971 pushed things further. Oil was priced in dollars, so a falling dollar ate straight into producers' income.[4] Price talks with the companies grew tense through 1973 as a result.[1]
The political groundwork was laid at the same time. King Faisal of Saudi Arabia had long argued for keeping oil out of politics. Anwar Sadat, who succeeded Nasser in Egypt in 1970, drew closer to him and expelled Soviet military personnel in July 1972. In April 1973 the Saudi oil minister, Ahmed Zaki Yamani, warned Henry Kissinger that Faisal wanted Israel to give back the land taken in 1967, and Kissinger largely dismissed it. On 23 August 1973 Faisal and Sadat met in Riyadh and secretly agreed that oil would be used if war came.[4]
Ten Days from Kuwait to Riyadh
Egypt and Syria attacked Israel on 6 October 1973. Price talks with the companies broke off within days, and on 12 October Nixon authorised an airlift of arms to Israel.[2][4]
On 16 October ministers from six Gulf producers met at the Sheraton in Kuwait City with no oil company representatives in the room. They announced that the posted price was going from $3.01 to $5.12 a barrel, a rise of about 70%. It was the first time producers had set the price themselves without asking the companies.[2][4] The next day the Arab producers agreed to cut output by 5% from September levels and by a further 5% each month. Iraq walked out, stayed out of the cuts, nationalised American and Dutch company assets and raised its production.[2]
Kuwait and the UAE announced a halt to exports to the United States on 18 October. Nixon removed the last hesitation in Riyadh on the 19th by asking Congress for $2.2 billion in military aid for Israel. Libya declared an embargo the same day. That evening Faisal, after talking with his advisers, had Yamani write out a full embargo on the United States, and raised the Saudi cut to 10%.[1][2][4]
The producers split the world into three groups. Friends had no cut, neutrals a 5% cut and enemies an embargo. Along with the United States the list took in the Netherlands, Portugal and South Africa. The Dutch were on it because NATO bases on their soil were used to supply Israel.[1][2] The war ended on 26 October and the embargo did not. On 5 November the general cut went to 25%.[2][4]
Kissinger saw Faisal in Riyadh on 8 November and asked him to end the embargo, and Faisal refused.[4] The market soon moved to panic prices. At an auction by Iran's national oil company on 16 December, bids reached about $17 a barrel. Gulf producers met in Tehran at the end of the month and set the posted price at $11.65 from 1 January 1974. Faisal opposed the rise and the Iranian delegation pushed it through.[4]
Gasoline Lines from Oregon to Amsterdam
American drivers went into the winter of 1973 in queues. Regular gasoline averaged 38.5 cents a gallon in May 1973 and 55.1 cents in June 1974. The bigger problem was reaching the head of the line and finding the pump dry. Nixon asked dealers not to sell on Saturday nights and Sundays, and about 90% of station owners complied.[4] Oregon banned Christmas lights and commercial lighting outright. It was also the first state to adopt odd and even days by the last digit of the licence plate, and others followed.[4]
Washington lengthened some of those lines itself. Price controls capping old oil and allowing more for newly found oil squeezed supply. The Emergency Petroleum Allocation Act, signed on 27 November 1973, put distribution in government hands. Allocations to the states were based on 1972 consumption, so regions with growing populations got longer queues.[4]
Europe varied from country to country. The Netherlands banned private driving on Sundays from November 1973, and photographs from those days show cyclists and horse carts on the motorways near Amsterdam. Germany, Italy, Switzerland and Norway also banned Sunday driving, and Sweden rationed petrol and heating oil.[4] In Britain action by coal miners and rail workers came on top of the shortage, and the government moved to a three-day working week on 1 January 1974 to save electricity. Japan imported almost all its oil. Foreign Minister Masayoshi Ohira went to Riyadh on 11 December, and within weeks Tokyo's Middle East line had shifted towards the Arabs.[4]
The Effect on Türkiye
Oil-dependent Türkiye felt the bill in its balance of payments within a few years. A comparative study with South Korea by Küçük and Yücekaya shows a current account surplus of $60 million in 1973 turning into a deficit of $2,029 million by 1976. Exports fell about 20% in 1973 and 1974. Government borrowing filled the gap with short-term foreign credit, and by 1977 the debt, under 10% of GDP in 1972, had become unsustainable. Türkiye turned to the IMF and the lira was devalued in 1979.[6]
Kissinger, Schlesinger and the End of the Embargo
Kissinger worked on two tracks, one with the producers and the other with Egypt, Syria and Israel on an Israeli pullback from Sinai and the Golan. This came to be called shuttle diplomacy. On 18 January 1974 Egypt and Israel signed their first disengagement agreement.[1] Another idea was also being discussed in Washington. Defense Secretary James Schlesinger reportedly raised the seizure of oil fields in Saudi Arabia, Kuwait and Abu Dhabi. When the CIA confirmed a Saudi threat to cut production in the event of invasion, Kissinger shelved it.[4]
As prices soared some producers grew uneasy themselves. In January 1974 ministers agreed to raise output by 10% in place of the planned 5% cut. Arab ministers lifted the embargo on the United States on 18 March 1974, and the one on the Netherlands lasted until 11 July.[1][2] Throughout the embargo the Dutch actually received almost twice what they needed.[2] The price did not go back. Producers bought out company stakes or nationalised them more quickly, and Big Oil slowly went from owner to customer in the Gulf.
The Paris Agency and the New Rules
On Kissinger's proposal the consumer countries set up the International Energy Agency in Paris in November 1974. Members promised to hold stocks equal to 90 days of net imports and to share in a crisis. The United States created the Strategic Petroleum Reserve in 1975 and imposed fuel economy standards on cars, and the national 55 mph speed limit dates from the same period.[1] Project Independence, announced by Nixon on 7 November 1973 to make the country self-sufficient, came to nothing.[1] The Alaska pipeline had been stuck in the courts for years, and a law passed by Congress in November 1973 cleared the way. North Sea oil became economic at the new prices.
Tankers Laid Up in the Fjords
Shipowners took one of the heaviest bills. Tanker owners had spent 1972 and 1973 in a rising market and had ordered bigger and faster ships. Demand collapsed in the autumn of 1973 and consumption fell for three years in a row. Freight rates more than halved in 1974 and bunker costs roughly tripled.[3]
The orders could not be cancelled. Yards delivered 41.8 million dwt in 1974 and 44.8 million in 1975. In May 1975 Exxon fixed eight VLCCs for 12 months at rates below operating cost. By the end of 1975, 573 ships of 47.8 million tons were laid up, 160 of them under seven years old, and a study that year identified 45 possible lay-up sites in 25 countries.[3] The Suez Canal reopened in June 1975, which shortened voyages and added to the surplus. The industry set up a joint crisis forum in London in December 1975, and the surplus still lasted for years.[3]
The engine room changed too. A 500,000 DWT ULCC delivered in 1976 could reach 16 knots, burning 350 to 400 tons of bunkers a day to do it. With fuel so expensive the best voyage speed fell from 15 knots to as low as 10.[3] Steam turbines had been common on giant tankers in the years of cheap fuel. Owners now turned to thriftier slow-speed diesels, and fuel consumption became one of the main items in ship design.
From the Second Shock to 2026
The Iranian Revolution of 1979 took the price to about $40 a barrel. Lost demand and non-OPEC output brought it sharply down in the 1980s. The comparison came up again in 2026. With war in the Persian Gulf, flows through Hormuz fell from about 20 million barrels a day to a trickle. The IEA called it the largest supply disruption in the history of the oil market, and on 11 March 2026 members agreed to release 400 million barrels from stocks.[5] Those stocks rest on the 90-day net import obligation members took on in Paris in 1974.
Frequently asked questions
What was the 1973 oil crisis?
The global energy shock, also called the first oil shock, caused by the Arab oil exporters' embargo of October 1973 and rapid price rises.
Why did the 1973 oil crisis happen?
The immediate cause was American support for Israel in the October 1973 war. Behind it lay falling US output, the weak dollar and years of price disputes between producers and the oil companies.
When did the oil embargo end?
The embargo on the United States was lifted on 18 March 1974 and the one on the Netherlands on 11 July 1974.
What were the effects of the 1973 oil crisis?
Crude roughly quadrupled, drivers queued in the United States, Europe brought in Sunday driving bans and rationing, the IEA was founded in 1974, and tanker owners faced years of surplus ships.
Who started the 1973 oil embargo?
Arab oil exporters led by Saudi Arabia. Kuwait and the UAE stopped shipments to the United States on 18 October, and Libya and Saudi Arabia followed on 19 October.
How much did oil prices rise in 1973?
From about $3 a barrel to about $12 in under five months.
Sources
- US Department of State, Office of the Historian. Oil Embargo, 1973-1974.
- Oil & Gas Journal. The 1973 oil embargo: its history, motives, and consequences.
- INTERTANKO. History, 1973-76.
- Wikipedia. 1973 oil crisis (secondary source).
- gCaptain. IEA Warns Hormuz Crisis Triggering Largest Oil Supply Disruption in History, 12 March 2026.
- Küçük, Ö. N. and Yücekaya, M. State Responses to Oil Crisis in Oil-Dependent Developing Countries: South Korea and Turkey after the 1973 Oil Crisis. International Journal of Asian Studies, 21(1), 2024.
