Money Matters: An IMF Exhibit -- The Importance of Global Cooperation

Reinventing the System (1972-1981)

Part 2 of 7

 

Conflict &
Cooperation
(1871 - 1944)

Destruction &
Reconstruction
(1945 - 1958)
The System
in Crisis

(1959 - 1971)
Reinventing
the System
(1972 - 1981)
Debt &
Transition

(1981 - 1989)
Globalization and Integration
(1989 - 1999)
 
 
 

OPEC Takes Center Stage

<--Previous Next-->
 

The fourth Arab-Israeli conflict broke out in October 1973. Over the next three months, the price of crude oil shot up 300%! Global energy and financial crises ensued.

 

OPEC Capitalists

credits

Did the war cause the oil crisis? The answer is yes, and no:

  • Because of the war, the Organization of Arab Petroleum Exporting Countries (OAPEC) declared an oil embargo against the United States and the Netherlands - countries judged too friendly to Israel. The embargo caused severe energy shortages over the winter of 1973-74.
  • At the same time, the Organization of Petroleum Exporting Countries (OPEC) sharply raised the price of crude oil. Although OPEC acted mainly for economic reasons, the war did serve as a catalyst. (OPEC includes the OAPEC countries, plus other non-Arab oil exporters such as Algeria, Indonesia, Ecuador, and Venezuela.)


Ultimately, it was the steep oil-price increases of the 1970s, not the politically motivated 1973 embargo that intensified high inflation, caused a global recession, and drastically altered most countries' balance of payments.

  map of Italy wearing a rollerskate
credits

OPEC's Point of View

  • The U.S. dollars OPEC received for oil fell in value during the early 1970s, because of devaluations and depreciation.
  • Oil prices had not kept up with other commodities. Between 1960 and 1973, the price of oil increased a mere 25% - far less than other commodities.
  • Underpricing had caused oil to be wasted. OPEC price increases and production cuts were necessary, to protect resources from depletion.

 

Dealing with the Energy Crisis


  • In December 1973, a large part of the British work force began to work a three-day week to conserve electricity.
  • In the United States, year-round daylight saving time went into effect in 1974, and the national speed limit was lowered to 55.
  • In Europe, stores could not keep up with a high demand for bicycles.
  • India's prime minister, Indira Gandhi, set an example in November 1973 by riding to and from work in a horse-drawn cart.
  • The oil embargo caused serious gasoline shortages in the winter of 1973-74.

 

 
Would Floating Rates
Sink the System?
OPEC Takes Center Stage Petrodollar Problem
     
Recycling Petrodollars Stagflation Rush from the Dollar War on Inflation

<--Previous Next-->