IMPACT OF OIL CRISIS OF 1970s

Submitted to: Dr. Anil Kanungo

Submitted By:
Deependra Singh Shekhawat(04)
Saksham Gupta(05)
Akash Bhargav(09)
Utkarsh Sharma(11)
Himanshu Maan(30)
Shubham Rai(54)
Overview
A war fought by the coalition of Arab states led by Egyptian Syria against Israel because
of the United States massive aid Israel defeated its enemies which pushed OPEC the
organization of the Petroleum Exporting Countries to Retaliate through an embargo
essentially the embargo was a response to the u.s. decision to resupply Israel with arms
after the start of the war this meant that Arab countries limited the sale of oil to the US
which in turn causes spike in oil prices the embargo crippled the world's economy with
 Inflation
 Interest Rates
 Effect On Industries
 Sales
 Unemployment
 RATE OF INFLATION

• After October 19, 1973 over the next six months, oil prices quadrupled.
• Prices remained at higher levels even after the embargo ended in March 1974.
• Oil prices went up from $25.97 per barrel in 1973 to $46.35 per barrel in 1974.
 Real Interest Rates
• Figure shows the median (purple line) of the long-run real interest rates across our full sample of
countries for each year.
• The median follows the same three broad trends as the G7 nations: decline to the mid-1970s, rise
until the late 1980s, followed by decline. The median closely tracks the U.S. rate (red line).
 EFFECT ON INDUSTRIES

• India
• -“A decline in availability of petroleum products without a substantial and
immediate improvement in coal supplies will certainly affect agriculture,
industry and transport.”
• US
• -Gas stations started running out of gas. Cost of logistics went up multiple
times, so did the cost of produce. Everything from fertilizers to plastics to
lubricants to toothpastes saw rising prices because of this. Every industry that
used petroleum products as fuel like Petcoke and fuel oils saw their
production costs rise. As oil is used in transporting everything, oil is also
necessary for all plastic packagings , also used as industrial fuel. This price
hikes started a cycle of inflation that stayed till 1979. This was similar to a
precursor of how conditions will be when oil runs out.
 SALES

• Negative Supply shock- US import of oil from

the Arab countries dropped from 1.2 million
barrels per day to 19000 barrels.

• Daily Consumption dropped by 7% during

Summers of 1974.

• Automobile sales volumes also plunged as a

result of falling consumer confidence,
gasoline shortages, and rising prices. Monthly
sales volumes posted year-on-year declines of
10-plus percentage points starting in
December 1973.
 Unemployment

• Due to the oil crisis of 1973, many countries were affected.

• The oil crisis of 1973 also had similarly large negative effects on other
countries that relied heavily on imported oil, such as France, Sweden, Japan,
Finland, Belgium, Luxembourg, and Denmark.
• There was a rigidity of real wage throughout Europe.
• Unemployment reached a post World War II high in 1975.
• Unemployment afflicted 45 million workers in the industrial world.
• United States and the rest of the industrial world had become dependent on
the cheap oil that fueled postwar economic expansion and this is why when
the prices went up 70%, it was a disaster.