Download case study: oil crisis 1973 - North Park Vikings website

CASE STUDY: OIL CRISIS 1973
June 14, 2016
Kayla Caruso, Sanjot Rai, Venu Mehta
The oil crisis of 1973 was a direct result of the OPEC oil embargo imposed on the United States
because of their interference in the Yom-Kippur War. As a result of this embargo, oil prices
quadrupled and the price of each oil barrel went from $3 to almost $12. This was also because oil
supply was limited but demand was still the same. The crisis also affected he automotive industry.
While American automakers had to spend a lot of money reformulating their cars to make them
fuel efficient, the Japanese automotive industry saw a huge rise in sales in their fuel efficient cars.
The oil shock also affected the Seven Sisters. The Seven Sisters included oil companies like BP,
Chevron, Shell, Gulf, Texaco, Mobil and Exxon. The oil crisis benefitted them as the rising prices
allowed them to increase their search for oil. However, the American citizens were shocked to see
their increase in profits during a crisis so severe. This led to a bad reputation for the Seven Sisters
and eventually caused them to relinquish their powers over some of the oil reserves. Canada was
also affected by the crisis. Alberta, Canada’s oil rich province, saw an oil boom during those years.
The province witnessed a booming housing market, rising oil stocks and an entrepreneurial spirit
among lawyers, professors and dentists who started their own oil ventures. However, this boom
ended with the recession that struck in the 1980s. Overall, the oil crisis had a severe impact on
many countries especially the United States which saw a huge inflation and rise in unemployment.
Articles to study
https://www.opendemocracy.net/ourkingdom/david-wearing/forty-years-on-effects-of-1973-74oil-crisis-still-shape-british-foreign-po
http://nation.time.com/2013/10/16/40-years-after-the-1973-oil-embargo-the-u-s-is-stronger-onenergy-but-so-is-the-middle-east/
http://www.theguardian.com/environment/2011/mar/03/1970s-oil-price-shock
Guiding Questions
1. How did the 1973 OPEC oil embargo affect supply and demand? Aggregate supply and
demand? What conclusions can be made about elasticity and prices in the oil market?
2. How did the government intervene to try and soften the impact of the oil shock? In theory,
what monetary and fiscal policy could the government have employed to further aid the
crisis.
3. What are some of the opinions of different economic theorists regarding the issue? What
would historical economists say about the situation?
4. How did economic and political systems affect the decisions and actions taken?
5. Why do you think the changes in oil prices would cause such a dramatic shift in the
economy?