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OIL PRICE HIKE IN 1973
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INTRODUCTION
The world consumes about 76 millions barrels per day of oil and OPEC accounts for nearly 60% of world’s proven oil reserves & its exports represent 55% of the oil traded internationally.
India ranks among the top 10 largest oil consuming countries. India’s oil reserves are deficient and it imports nearly 70% of its total oil consumption from the OPEC countries.
The 1973 oil crises began in October 1973 when the member of the Organization of Arab petroleum Exporting Countries, proclaimed an oil embargo.
By the end of the embargo in March 1974, the price of oil had risen from $3 per barrel to nearly $12.
3 OPEC
IRAQ
KUWAIT
UNARAB LIBYA
SAUDIARAB
The Organization of the Petroleum Exporting Countries (OPEC), which then comprised 12 countries, including Iran, seven Arab countries
About OPEC Countries
Qatar
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OPEC was organized to resist pressure by the "Seven Sisters" (seven large oil companies, mostly owned by U.S., British, and Dutch nationals) to reduce oil prices and payments to producing countries
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It prohibits nation that had supported Israel in its “Yom Kippur War" with Egypt, Syria and Jordan from buying any of the oil it sells.
6What did happen ?Who?
OPEC would decide the price and amount of oil. What?
President Nixon showed his support of Israel by giving them $ 2.5 billion worth of arms
Where?
Contrary war between the three countries.
Who
What
When
Where
What
Result
When?
Contrary roots took place & it was called "oil diplomacy" on October 17, 1973.
What?
OPEC nations retaliated against those nations supporting Israel by putting an embargo on oil shipments
Result
the price of gasoline shot way up as its supply went down, leading to shortages
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Macroeconomic Effects
The price of oil products increase 400%: from $2.59 to $11.65 a barrel.
The quadruple increase in oil price lead to inflation in consuming countries.
Western nations’ central banks decided to sharply cut interest rates to encourage growth.
This leads to searching for renewable sources of fuel.
INTRODUCING NEW RULES IN AFFECTING COUNTRIES
• Limit on refuel of oil up to 10 liter /person.
• Speed limit on roads .
• There was a shortage of gas in all over countries due to stop in supply.
9
USA European c Sweden Netherlands Japan
Effect on countries to countries
Emergency Highway Energy Conservation Act
Governments ban flying, driving and boating on Sundays
Government rationing of gasoline and heating oil
Government imposes prison sentences for using more than given rations for electricity
Industries shift from oil-focused to electronics
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• India ranks among the top 10 largest oil- consuming countries
Oil crisis affects India’s economy
• Oil accounts for about 30% of India's total energy consumption
• Now India imports about 70% of its total oil consumption and makes no exports.
• This naturally would create a supply deficit, as domestic oil production is unlikely to keep pace with demand.
• An IMF report says that among the oil importing countries, the largest impact on GDP growth and the balance of payments is expected to be felt in India, Korea, Pakistan, Philippines, Thailand, and Turkey
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Balance of Payments due to oil imports
• Although the entire burden of the spike in price has not been passed to the domestic consumer, the Indian government's finances have taken a sufficient hit, affecting the macroeconomic outlook in India.
• India, as a result, will experience deterioration in its balance of payments, putting downward pressure on exchange rates
• Ultimately, imports would become more expensive and exports less valuable, leading to a drop in real national income.
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Thank you….
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