17 October 1973: Arab states declare oil embargo

Long queues formed at petrol stations after oil cartel Opec placed an embargo on the US on this day in 1973. The price of crude soared to $12 a barrel.

In 1960, 12 oil-exporting nations, mainly in the Middle East, formed the Organisation of the Petroleum Exporting Countries (Opec). Its proposed role was to address the imbalance created by the Seven Sisters, a group of British, American and Dutch oil companies that had been working together from the early 1950s.

At first, Opec focused on increasing the royalties paid to governments, and expanding the role of state oil firms.Its impact on the oil price was modest.

This period of stability was upset by three factors. Firstly, US oil production peaked in 1970, making America far more dependent on overseas imports.

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Secondly, the end of the Bretton Woods currency arrangement in 1971 hit the value of the dollar, and in turn the real value of Opec's oil revenues (as oil was priced in dollars).

Finally, the decision of Syria and Egypt to attack Israel in early October plunged the Middle East into chaos. Richard Nixon's administration after some wavering intervened to support Israel.

On 16 October, Opec announced a price hike, then a day later, its Arab members decided to slash oil production and imposed an embargo on the US (later extended to Japan and western Europe). The oil price quadrupled from $3 a barrel to $12 ($56 in today's prices).

This caused queues at American petrol stations, while in the UK its effect on coal reserves (already depleted by an ongoing strike) saw electricity rationed to three days a week.

Even after the embargo ended in March 1974, the oil price remained high, thanks to efforts by Opec. This led to stagflation' high inflation and unemployment taking hold in Europe and America.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

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