FIC Aryabhatta organised a presentation, for its members, on the topic ‘OPEC Oil Crisis of 1973’. The presentation was arranged to give knowledgeable insight into the crisis and how did it unfold and affected the world. The presentation started with an overview of the 1973 OPEC Oil Crisis, and how it turned out to be a major economic recession for the most advanced economies. The presentation bought forward the complex nature of the oil market and how it can and has affected the global economy.
The discussion on the crisis began with examining the role of the two major groupings of petroleum exporting countries, which are, OAPEC and OPEC.
OAPEC stands for Organisation of Arab Petroleum Exporting Countries. Their headquarters is located in Kuwait, and they primarily work towards coordinating the energy policies among its members. OPEC, or the Organisation of the Petroleum Exporting Countries, is a bigger grouping with 6 members of OAPEC part of OPEC. Their headquarters is located in Austria, even though Austria is not part of the grouping. They work with the main aim to put forward a coordinated energy policy framework and work together to achieve the same.
A brief and informative idea was given as to how these organisations work and what is their purpose. Various interesting facts and trivia were shared by the presenters, with an active and enthusiastic contribution by all.
Once everyone was familiarised with the background of the event leading up to the crisis, the discussion shifted towards the reasons and events which caused the event, in which the members got to know about the consequential role played by the Yom Kippur War of 1973. It was also The War of Israel against Egypt and Syria. Tensions soared in the Arab world as Israel was perceived as the common nemesis of all the Arab nations.
To take on Israel and its western supporters, mainly the USA and Western Europe, OAPEC proclaimed an Oil Embargo in which they decreased production by 25%.
This production cut severely hit the US economy and much of the Industrialized and Advanced Economies of the world. Another very important reason for the crisis which was discussed was the discontinuation of the Bretton Woods System by President Nixon in 1971. The falling of this system led to the depreciation of the dollar which caused high uncertainties for the currencies earlier attached to it. This acted as a catalyst for the crisis, as major oil companies who had reported their earnings in dollars saw their profit shrink as the dollar depreciated.
The period leading up to the 1973 crisis also saw high US dependency on oil imports from the Arab countries as domestic production could not keep pace with the rising demand.
The discussion at this point also diversified into global politics and how it played an important role in the making of the crisis.
The impact of the embargo was both immediate and evident with prices quadrupling. The embargo gravely impacted the US economy and their domestic policies just added on to the burden of their ailing economy. Nixon’s wage-price control caused a recession in the economy with added stagflation. The Federal Reserve repeated changes in the interest rates decreased business’ confidence and they kept their prices high which added to the inflation problem. This was the first time after WWII that the US faced fuel shortages.
To make the presentation even more interactive several short quizzes were also organised in which members participated with great enthusiasm and tested the knowledge they had gained from the presentation.
The presentation shed light upon the interesting measures which were taken up by the US government which included odd-even rationing and colour coding gas stations. The ‘Gulf 6’ raised the prices of oil with an increase of 500% within 7 months. They didn’t shy away to declare oil as a weapon against unfriendly states, with an intent to pressurise governments around the world towards a more pro-Arab position. The embargo had a severe impact on the world economy as the growth rate and international trade plummeted.
The discussion at this point was extremely insightful wherein participating members tried to apply several economic principles to explain and understand the economical situation of that time.
The presentation turned out to be a fruitful exchange of ideas and knowledge on a vast array of topics related to the crisis. The attending members benefited immensely from the presentation and gained a new perspective on the issue.