A presentation on the 1970\'s energy crisis. As a part of the Economics curriculum

1. THE 1970S CRISIS Presented by: Harsh Vardhan Sharma 1

2. Contents Energy Crisis. Arab-Israel Conflict. 1973 Yom Kippur War. Demand & supply shock. 1973 Oil crisis... Immediate economic impact of the embargo. Macroeconomic effects. Long term effects. Iran. 1979 (or second) oil crisis. Effect on OPEC 2

3. Energy Crisis An energy crisis is any great bottleneck in the supply of energy resources to an economy. It usually refers to the shortage of oilor other natural resources. Energy crisis may be referred to as an oil crisis, petroleum crisis, energy shortage, electricity shortage or electricity crisis. 3

4. Causes of Energy Crisis Over-consumption, Ageing infrastructure, Bottlenecks at oil refineries, Port facilities that restrict fuel supply. 4

5. Arab-Israel Conflict Zionist Jews expressed their desire to create a modern state in the ancient land of the Israelites. After World War II Israel, was created on 56% of the land that was formerly known as Palestine. This state served as a homeland for Jews. Arabs were enraged because Palestinian land had been taken to create this state. 5

6. 6

7. Various Conflicts Arab refused to acknowledge Israel as an independent state. Suez-Sinai War: Nationalizing the Suez Canal. 1967 Israel launched the Six-Day War, claiming much land. 7

8. SUPPLY SHOCK Sudden event that increases or decreases the supply of a particular product. Positive supply shock – Increases the supply – Lowers the price. Negative supply shock – Decreases the supply – Raises the price. 8

9. A NEGATIVE SUPPLY SHOCK 9

10. DEMAND SHOCK Sudden event that increases or decreases the demand for a particular good. Positive demand shock – Increases demand – Increases price. Negative demand shock – Decreases demand – Decreases price. Reasons – Changes in tax rates, money supply, government spending. 10

11. DEMAND SHOCK 11

12. YOM-KIPPUR WAR On 6 October 1973 Egypt, Syria & Iraq launched a surprise attack against Israel. It was Yom Kippur, the Day of Atonement, the holiest day of the Jewish year. The war was brief, but it was hard fought in its early stages when the combined forces of Egypt and Syria, armed with Soviet weapons, nearly overwhelmed the Israeli forces. But with the resupply of Israeli weapons by the United States and the U.S. warning to the Soviet Union to stay out of the conflict, Israeli forces rallied and Arab states were defeated. 12

13. 70’s Crisis Two crisis during 1970’s. 1973 Oil Crisis- Yom-Kippur War. 1979 Energy Crisis- Iranian Revolution. 13

14. 1973 CRISIS OIL 14

15. 1973 Oil Crisis… Began on 17th October, 1973 when OPEC announced that they would not ship oil to US, European & Dutch Nations. Netherlands supplied arms & Americans used Dutch airfields to supply guns. The Arab oil embargo. Price increase to reduce demand to the new lower level of supply. 15

16. Economic Impact of the Embargo The oil companies in the west were forced to increase payments drastically. The price of oil quadrupled by 1974 to nearly US$12 per barrel. The traditional flow of capital reversed. Saudi Arabia, undertook a series of ambitious five-year development plans. 16

17. Continued… Negative supply shock -U.S. imports of oil from the Arab countries dropped from 1.2 million barrels per day to 19,000 barrels. Daily consumption dropped by 7% during summer of 1974. The retail price of a gallon of gasoline rose from a national average of 38.5 cents in May 1973 to 55.1 cents in June 1974. New York Stock Exchange shares lost $97 billion in value in six weeks. 17

18. 1973 Oil Crisis in Photographs 18

19. 19

20. 20

21. 21

22. 22

23. Search for Alternatives Greater interest in renewable energy, spurred research in solar & wind power. Greater pressure to exploit North American oil sources. The Brazilian government implemented a very large project called "Proálcool" (pro-alcohol). 23

24. Effects on International Relations The Cold War policies of the Nixon administration also suffered a major blow. Western Europe and Japan began switching from pro-Israel to more pro-Arab policies. The Soviet economy had stagnated for several years, and the increase in the price of oil had a beneficial effect. 24

26. Central banks sharply cut interest rates to encourage growth.

27. Stagflation.

28. Public suspicion of the oil companies.25

29. JAPAN 26

30. LONG TERM EFFECTS Economic recession throughout the world. Inflation remained above ten percent and unemployment was at its record high. Ended the common belief that economic prosperity reflected oil consumption statistics. Exploration and development of resources within the U.S. increased dramatically. 27

31. 28

32. Continued…… One of the biggest long-term effects was the massive change in cars due to the oil embargo. It was a political and economical achievement for the Middle East. 29

33. 1979 ENERGY CRISIS 30

34. Iranian Revolution(1978-79) Iran (2nd largest producer)- “…it's only fair that, from now on, you should pay more for oil. Let's say ten times more…”- SHAH. November 1978- strike by 37,000 workers. 1979-Shah of Iran left IRAN. Ayatollah Khomeini declared Iran an Islamic republic. 31

35. Continued… Demonstrations held in protest to the new rules. Foreign skilled oil workers fled due to the unrest. Result-Rise in oil price which made record profits. 32

36. 33

37. 34

38. WAS OPEC SUCCESSFUL?? NO 35

39. 36

40. DECLINE OF OPEC 1980’s Oil Glut Price Decline & Over Production. Internal Disunity among its members. By 1981- Western countries produced more. Increase in the use of alternative sources of energy. 37

41. THANK YOU Feedback/Questions?? 38