March 03, 2011
The oil crisis of 1973 started when the members of the Organization of Arab Petroleum Exporting Countries (OAPEC) proclaimed an oil embargo in response to the United States decision to supply Israel with military weaponry. OPEC announced a decision to raise the posted price of oil by 70%, to $5.11 a barrel.
The effects of the embargo were immediate. OPEC forced the oil companies to increase payments drastically. The price of oil quadrupled by 1974 to nearly $12 per barrel.
On an international level, the price increases of petroleum disrupted market systems in changing competitive positions. At the macro level, economic problems consisted of both inflationary and deflationary impacts of domestic economies.
Now, then, take a quick look at the current price of per barrel and there are good reasons to be worry. The Middle East and North Africa produce more than one-third of the world’s oil. The Egyptian and Libyan conflicts have shortened the international oil supply.
The price of Brent crude jumped 15% as Libya’s violence flared up, reaching $120 a barrel on February 24th. What’s more, the fear of the oil disruption can additionally increase oil prices, (read article).
At the moment, oil prices have not drastically affected the international oil supply; mostly because the Libyan conflict has only reduced global oil output by 1 percent. In 1973 the figure was around 7.5 percent.
At its worst, the oil output will decrease by 1-3 percent, but unless the regions political affairs are straighten out the fear will remain.
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