The oil market hostilities arose from a pact between Faisal and the leaders of Egypt and Syria, whose armies planned surprise drives to retake their territory under Israeli occupation. If the United States intervened to assist Israel, Faisal and other Arab producers agreed to retaliate with the “oil weapon.”
When Washington airlifted in U.S. weapons that helped Israel thwart Arab gains, Faisal and OPEC’s Arab members retaliated. They increased oil prices, banned oil shipments to the United States and cut production by 5% per month.
The ensuing economic and political carnage is legendary. The embargo catalyzed a long period of upheaval in global oil markets and pain at the gasoline pump for Americans and consumers globally. Oil prices quadrupled nearly overnight and remained high for over a decade. Producing countries leveraged the opportunity to reclaim sovereignty over their oil reserves. By 1980, many had completed the process of kicking Western oil companies out of their territories.
Oil’s global regime change
The embargo’s disruptive power was due to two key factors: OPEC’s dominance of world oil supply, and oil’s supremacy in the global energy mix.
Prior to the embargo, oil fueled almost half of total energy consumption in the United States (47.5%) and worldwide (49%). While OPEC countries produced more than half (53%) of global oil, the concessions were operated by Western oil majors.
After the embargo, producer states took over. Control of global oil production passed from Western oil giants like Shell and Exxon to newly formed national oil companies.