Oct 17, 2018: OPEC oil sale embargo 45 years ago had unintended consequences?
AUSTRIA - In 1973 OPEC implemented what it called “oil diplomacy” and embargoed oil sales to Israel’s allies. It could be argued, 45 years on, that the embargo led to the recent oil glut that complicated the organization’s attempt to control supplies.
OPEC’s aim was to punish countries that had supported Israel in its so-called Yom Kippur War against Egypt, Syria and Jordan, by preventing them from buying any of the oil it sold. The ensuing energy crisis marked the end of the era of cheap gasoline, made gas-sipping vehicles popular and made oil production in the countries hardest hit by the embargo a sound commercial proposition.
The embargo crippled the United States, which supported Israel and was then importing some 27 per cent of the crude petroleum it needed every year. At that time it hadn’t developed its own oil resources because of the abundant and cheap source from the Middle East. Fuel costs skyrocketed almost everywhere because of the embargo. In the United States and many other countries, domestic production made ever-increasing economic sense because of rising gasoline prices.
In the 21st Century, many countries produce oil and OPEC no longer has a cartel’s clout to exact political punishment or control prices. It reached out to rivals in 2016 to help it contain the glut and prop up prices. The 13 OPEC members and some 12 rival oil producing nations agreed to cut output by about 1.8 million barrels per day (bpd), but compliance is voluntary. Many countries, including the United States, are now self-sufficient in oil and sell unhindered on the world market, potentially dooming the impact of the cuts.