Fifty years ago this week, in response to American support for Israel in the Yom Kippur War, a group of Arab nations cut oil production and embargoed oil exports to the United States. These decisions unleashed economic devastation and reshaped global politics forever.

The embargo occurred during a period of high inflation, tight energy supplies, and an unprovoked attack against Israel supported by an expansionist outside power—all having corresponding echoes today. Yet many have refused to learn the lessons of the 1973 oil embargo and the response to it. The embargo should remind the U.S. both of the need for a thriving energy market at home and of the importance of standing by our allies abroad.

The 1973 embargo produced numerous immediate effects. One of the most visible was to transform the Middle East from a backwater into an economic powerhouse. Within a few months the price of oil quadrupled to almost $12 a barrel. Despite the drop in production, the higher price meant the total value of Middle Eastern oil exports shot up to about 1.5 percent of the global economy, triple the pre-embargo level. Some Arab countries became lavish petrostates almost overnight.

The high oil prices caused the West, meantime, to suffer the most severe economic collapse since the Great Depression. The recession marked the end of the global period of high growth that characterized the decades following the end of World War II and ushered in a new era of high inflation and low growth—soon known as “stagflation.”

Among the embargo’s longer-term effects was to give heft to arguments that America and the world had entered a new “Age of Limits,” marked by unavoidably lower living standards. After winning the 1976 presidential election on the back of high energy prices, a besweatered President Jimmy Carter told the nation that “the energy shortage is permanent” and that the country would have to “learn to live thriftily.”

This was bad advice. The 1973 embargo exposed as fallacious the efforts to cap energy demand and control prices rather than expanding supply. President Richard Nixon had imposed price controls on oil and gasoline; the consequent shortages caused the soon-to-be infamous gas lines. People often waited hours in their cars to fill up their tanks, burning even more gasoline in the process.

Only after President Ronald Reagan, just days after entering office, scrapped oil and gas price controls did the nation put the energy shortages to rest. Despite claims that, in the Age of Limits, America would soon run out of oil, the combination of lifting price controls and energy deregulation set the stage for the eventual transformation of the United States into the world’s largest oil producer. Currently, America’s strong energy industry makes it less vulnerable to foreign pressure.

The crisis also showed the folly of those who wanted to abandon America’s allies to secure short-term economic gains. The embargo failed to drive a wedge between the U.S. and Israel—and appeasement would never have created cheaper oil, anyway, since the Arab nations and the Organization of the Petroleum Exporting Countries liked the high prices secured during the war and kept them high, even after the formal embargo against America ended. The U.S. also understood that Israel’s opponents were clients of the Soviet Union, and that any concessions to the attackers would only have encouraged more Soviet aggression in the region. After the war, the U.S. learned that its support for Israel did not prevent it from growing closer to Arab nations such as Egypt.

Today, Hamas’s recent attack on Israel is supported by another outside power, Iran. Any concessions to Hamas would only encourage Iran’s aggressive posture, including against other friendly Arab nations that are moving closer to both Israel and the United States. Capitulating to Hamas and Iranian aggression would not secure us long-term stable oil supplies, either.  

The 1973 Arab oil embargo was one of the defining moments of modern history. To many, it foretold a new age of limited growth and American retreat. In truth, it demonstrated the ability of free markets to power growth and the importance of American support for allies abroad.

Photo by Allan Tannenbaum/Getty Images


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