The end of the glorious thirties, high growth rates and full employment, the oil shocks of the 1970s ended the post-war recovery and the rise of Western countries. These highly political crises are a reminder of the dangers of instability to our interdependent economies.
In 1973in the context of the Yom Kippur War, oil exporting countries cut production. This is the beginning first oil shock, a negative supply shock causing high inflation and rising unemployment. A few years later, in 1979 second oil shock amplifies these effects and marks final cessation of rapid growth in production for Western countries.
1973: First oil shock
1973 oil crisis actually begins with a geopolitical crisis during Doomsday War.
The Yom Kippur War as a trigger…
On October 6, 1973, a coalition of Arab countries led by Egypt and Syria launched an offensive against Israel. This is the beginning of the Yom Kippur War. However, on October 14, the US established an air bridge and delivered weapons to Israel. The coalition of Arab countries has been pushed back, and the course of the war on earth has been reversed.
In response to American support for IsraelArab member countries OPEC (Organization of the Petroleum Exporting Countries), to meet on 16 and 17 October and decide on A 70% increase in oil prices and a gradual decrease in production by 5% per month. On October 20, Saudi Arabia even proclaimed embargo in the USA. It will be removed after 5 months.
The Organization of the Petroleum Exporting Countries was founded in 1960 in Baghdad. It was founded by Saudi Arabia, Iraq, Iran, Kuwait and Venezuela and is rapidly being integrated by other countries (Libya, Algeria, United Arab Emirates, etc.). The idea of the participating countries is to agree on oil production and prices, as well as reduce their dependence on Western oil companies.
… from the economic crisis
In just a few months, the price of oil has quadrupled. The trunk comes from $2.60 in October 1973 to $11.65 in January 1974.. However, in 1973, oil alone accounted for 46% of the world’s energy mix. This price increase weakens especially savings industrialized countries highly dependent on oil used as an intermediate consumption for production. We are witnessing a period stagflationcombining weak growth with a sharp rise in prices.
1979: Second oil shock
If a the economic consequences of the second oil shock are similar compared to the first, the context is very different, because this time the price increase is not organized by OPEC. AT September 1978Start Iranian revolution worried about the financial markets. The price of a barrel of oil, then $13, rose to $35 in May 1979.
The Iranian revolution began during the violently suppressed riots by the current government on September 8, 1978, the day known as Black Friday. Many protests, demonstrations and strikes followed in Iran until the flight of the Shah (the former head of the Iranian state) on January 16, 1979.
Without the price of oil really having time to drop, war between Iran and Iraq broke out in September 1980. She signedstopping Iranian exports and maintaining high prices in the long run.
Long-term effects of the oil shock
In Franceand in most Western countries The 1970s marked the end of the Trente Glorieuses.. Whether the oil crisis is not the only factorthey serve as a catalyst.
Trente Glorieuses is the name given to France during the years of strong growth and investment between the end of World War II and the first oil crisis. An expression referring to the July Revolution of 1830, nicknamed the “Three Glorious Years”, was coined by the economist Jean Fourastier to refer to the “invisible revolution” that changed French society during this period.
With rising oil prices, production is generally disrupted. Enterprises for which black gold is an intermediate consumer good partially shift the increase in their production costs to their customers (enterprises and consumers). This leads to a reduction in profits and an acceleration in price growth: the annual inflation rate regularly exceeds 10%. The oil shock represents a drain of about 3% of gross domestic product (GDP) from the French economy: production slows and unemployment rises.
The end of the glorious thirties is a foregone conclusion. France went from an average growth of 5% per annum between 1950 and 1973 to 2.1% between 1973 and 2000. The unemployment rate, which averaged about 1.8% between 1950 and 1973, has never dropped below 7% since 1983. .
However, rising oil prices are benefiting some countries. This is the case in Saudi Arabia, the United Arab Emirates or Kuwait, which use this financial windfall to boost their economies.
Finally, the oil shocks of the 1970s also led to reduction of energy dependence Western countries against members of OPEC. In France this meansaccelerating civilian nuclear program.