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Oil crisis 1973

Page history last edited by Brian D Butler 15 years, 2 months ago

 

Oil Crisis of 1973

 

 

Causes:

 

1.   Yom Kippur War : in response, the oil producing OPEC nations said that they would no longer ship oil to nations that had supported Israel in its conflict with Syria and Egypt (the United States, its allies in Western Europe, and Japan).  About the same time, OPEC members agreed to use their leverage over the world price-setting mechanism for oil in order to raise world oil prices. 

 

 

2. End of Breton Woods.  This was one of the causes of the oil crisis.  On August 15, 1971, the United States pulled out of the Bretton Woods Accord taking the US off the Gold Standard (whereby the value of the dollar had been pegged to the price of gold), allowing the dollar to "float". Shortly thereafter, Britain followed, floating the pound off sterling. The industrialized nations followed suit with their respective currencies. In anticipation of the fluctuation of currencies as they stabilized against each other, the industrialized nations also increased their reserves (printing money) in amounts far greater than ever before. The result was a depreciation of the value of the US dollar, as well as the other currencies of the world. Because oil was priced in dollars, this meant that oil producers were receiving less "real" income for the same price. The OPEC cartel issued a joint communique stating that forthwith they would price a barrel of oil against gold. This led to the "Oil Shock" of the mid-seventies. In the years after 1971, OPEC was slow to readjust prices to reflect this depreciation. From 1947-1967 the price of oil in U.S. dollars had risen by less than two percent per year. Until the Oil Shock, the price remained fairly stable versus other currencies and commodities, but suddenly became extremely volatile thereafter. OPEC ministers had not developed the institutional mechanisms to update prices rapidly enough to keep up with changing market conditions, so their real incomes lagged for several years. The large price increases of 1973-74 largely "caught up" their incomes to Bretton Woods levels in terms of other commodities such as gold.[4]

 

 

 

 

 

 

 

 

Results:

 

Negative:

 

Positives:

 

 

 

 

 

 

 

 

Image:Oil Prices 1861 2006.jpg

 

 

 

 

Links:

 

read full history:  http://en.wikipedia.org/wiki/1973_oil_crisis

 

 

 

 

 

 

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