Oil shocks (1973-1979) – Finance for all

The end of the glorious 1930s, high growth rates and full employment, the oil shocks of the 1970s put an end to the post-war reconstruction and rise of Western countries. Mostly political, these crises are a reminder of the danger of instability for our interdependent economies.

In 1973in the context of the Doomsday War, oil-exporting countries are cutting production. This is the beginning the first oil shock, a negative supply shock, leading to high inflation and rising unemployment. A few years later in 1979, the second oil shock enhances these effects and marks final completion of high production growth for western countries.

Oil shocks (1973-1979)

1973: The first oil shock

The The 1973 oil crisis actually begins with the geopolitical crisis during Art Doomsday War.

Doomsday War as a trigger…

On October 6, 1973, a coalition of Arab countries led by Egypt and Syria launched an offensive against Israel. This is the beginning of the Doomsday War. However, on October 14, the United States created an airlift and delivered weapons to Israel. The coalition of Arab countries is rejected, and the course of the war on the ground is changing.

In response to American support for IsraelArab member countries with OPEC (Organization of Petroleum Exporting Countries), meet on October 16 and 17 and decide on a 70% increase in oil prices and a gradual decrease in production by 5% per month. On October 20, Saudi Arabia even proclaimed Fr. US embargo. It will be removed in 5 months.

The Organization of the Petroleum Exporting Countries was founded in 1960 in Baghdad. It was founded by Saudi Arabia, Iraq, Iran, Kuwait and Venezuela, and other countries are rapidly integrating it (Libya, Algeria, the United Arab Emirates, etc.). The idea of ​​member states is to agree on oil production and prices, as well as reduce their dependence on Western oil companies.

… From the economic crisis

In just a few months, the price of oil has quadrupled. The barrel comes from $ 2.60 in October 1973 to $ 11.65 in January 1974. However, in 1973, oil alone accounted for 46% of the world’s energy balance. This is a price increase weakens especially savings industrialized countries strongly depends on the oil used as intermediate consumption for production. We are witnessing a period stagflationwhich combines weak growth with a sharp rise in prices.

The average annual oil price is between 1970 and 19801979: Second oil shock

If the economic consequences of the second oil shock are similar Compared to the first, the context is very different, because this time the price increase is not organized by OPEC. in September 1978beginning Iranian revolution worries about financial markets. The price of a barrel of oil, then $ 13, rose to $ 35 in May 1979.

The Iranian revolution began during the riots that were violently suppressed by the authorities on September 8, 1978, a day known as Black Friday. Numerous protests, demonstrations and strikes continued in Iran until the escape of the Shah (former head of state of Iran) on January 16, 1979.

Without the price of oil really falling, the war between Iran and Iraq erupted in September 1980. She signed Artstopping Iranian exports and maintaining high prices in the long run.

Long-term consequences of oil shocks

In Franceand in most western countries, The 1970s marked the end of Trente Glorieuses. Or oil crises are not the only factorthey serve as at least a catalyst.

With the rise in oil prices, production as a whole is disrupted. Enterprises for which black gold is an intermediate consumer commodity partially shift the increase in production costs to its customers (business and consumers). This leads to lower profits and faster price growth: the annual inflation rate then regularly exceeds 10%. The oil shock is a leak of about 3% of gross domestic product (GDP) into the French economy: production is slowing and unemployment is rising.

The end of the glorious thirties is sealed. In France, from 1950 to 1973, growth averaged 5% per year to 2.1% between 1973 and 2000. The unemployment rate, which averaged about 1.8% between 1950 and 1973, has never fallen below 7% since 1983. .

However, rising oil prices are benefiting some countries. This applies to Saudi Arabia, the United Arab Emirates or Kuwait, which use this financial allowance to develop their economies.

Finally, the oil shocks of the 1970s also led to reduction of energy dependence Western countries in relation to OPEC members. In France it meansaccelerating the civilian nuclear program.