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.
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 indollars).
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.