Alarming! This Is the Most Shaking Oil Crisis Throughout History

Global crude oil is receiving heightened scrutiny due to soaring prices. When oil prices surge, the world becomes anxious about potential inflation spikes that often create economic slowdowns and crises.

Currently, global crude oil prices are climbing due to tensions between the United States and Iran, creating controversy in the Middle East. The problem is that the Middle East region is the world’s oil field, presenting threats to supply disruption.

Additionally, military conflicts occurring in the Middle East also affect the largest oil distribution route through the Strait of Hormuz.

Global oil prices have reached US$100 per barrel. Various regions of the world have begun sounding the alarm on inflation and economic slowdown.

The Strait of Hormuz is a strategic route through which approximately 30% of all global crude oil passes, with an average of around 13 million barrels per day exported through the strait.

According to analysts and international reports, Asian nations such as Japan, South Korea, India, and China are among the most vulnerable because the majority of their crude oil imports enter through the Gulf via the Strait of Hormuz. Japan and South Korea import over 70-80% of their oil needs through this route.

The impact has already begun appearing in the market: Brent crude oil prices have risen, and this increase could potentially suppress inflation, widen trade deficits, and dampen economic growth in energy-importing countries.

However, this is not the first time global crude oil prices have been shaken so violently. Several major crises throughout history have shaped the dynamics of global oil prices. Below are some crises that have occurred and left significant impacts on the global energy market.

The First Oil Crisis

From 1860 to 1940, oil prices per barrel fluctuated according to global events. Prices increased during World War I and fell during the 1929 economic crisis. Between 1948 and 1970, prices remained relatively stable and low, before entering a series of crises known as “oil shocks.”

The “first oil shock” began in 1971 when the Bretton Woods international financial system was abandoned. This crisis intensified in 1973 during the Yom Kippur War, when oil-producing nations in the Arab world announced an oil embargo against countries supporting Israel. Within one year, oil prices per barrel surged up to four times.

The Great Shock of 1973-1974

The first oil crisis occurred in 1973 when Arab nations that are OPEC members imposed an embargo against countries supporting Israel during the Yom Kippur War.

OPEC halted oil exports to the United States and several of its allies and cut production by approximately 5% per month.

This action caused global oil supply to be disrupted drastically, causing oil prices to surge nearly four times within a short period, from around US$3 per barrel in 1973 to nearly US$12 per barrel in early 1974. The impact was felt not only in the energy sector but also spread throughout the global economy, triggering high inflation and recession in many developed nations.

In December 1973, thousands of cars on many highways in the United States became stuck in traffic stretches for miles for hours. Truck drivers halted traffic as a form of protest against rapidly soaring petrol prices: in September 1973 petrol cost around 27 cents per gallon, but by December it had risen to 50 cents.

Long queues at petrol stations and petrol purchase restriction policies in industrialised nations became the most obvious signs of the “oil shock” in the world. A notice board at one petrol station in the United States read: “Petrol shortage! Sales limited to maximum 10 gallons per customer.” Another board was even more blunt: “Sorry, no petrol today.”

In Japan, fear of oil shortages even extended to other essential goods such as toilet tissue. Citizens flocked to grocery stores in panic to purchase as much as possible before stocks ran out.

The oil shortage crisis of 1973-1974 and the sharp surge in petrol prices were the result of two main processes: the increasing influence of OPEC and the oil embargo by Arab nations.

In the 1960s, OPEC was not taken seriously by major American and European oil companies. However, the situation changed after Muammar Gaddafi seized power in Libya in 1969. He pressured oil companies to give his country a larger share of profits. As a result, Libya successfully raised oil prices and obtained a majority share of profits of approximately 54-58%, which was subsequently followed by other nations such as Iran and Kuwait.

In 1971, OPEC’s bargaining power increased further. The Tehran and Tripoli agreements between oil-producing nations and international oil companies raised oil prices and increased the profit share of producing nations to approximately 55%.

The situation became more complex when in August 1971 the United States abandoned the gold standard and the dollar weakened. Because oil is traded in dollars, OPEC nations’ revenue declined as well. OPEC then demanded higher oil prices to offset the dollar’s depreciation, which triggered a series of price increases in 1972-1973.

On 16 October 1973, Gulf nations raised oil prices by approximately 70%. A day later, Arab nations decided to use the “oil weapon” by imposing an embargo against nations supporting Israel, including the United States and the Netherlands, after President Richard Nixon provided military aid to Israel.

The war and embargo drove oil prices to surge sharply. In December 1973, OPEC set prices at around US$11.65 per barrel, far higher than before.

OPEC nations’ oil export revenues surged from US$7.7 billion in 1970 to US$88.8 billion in 1974, marking the birth of the petrodollar era.