Forty years ago this week, six Persian Gulf oil producers voted to raise their benchmark oil price by 70 percent. Over the next two months, the Arab members of the Organization of the Petroleum Exporting Countries (OPEC) cut production and stopped oil shipments to the United States and other countries that were backing Israel in the Yom Kippur War. By the time the embargo was lifted in March 1974, oil prices had stabilized at around $12 a barrel -- almost four times the pre-crisis price. In 1973, that oil shock looked like a triumph for OPEC and a calamity for the rest of the world. The OPEC states enjoyed enormous windfalls and new geopolitical influence, whereas the United States and other oil importers were hit by unprecedented fuel costs and painful recessions.
But over the last four decades, those fortunes have reversed: higher oil prices in the OPEC states have led to spiraling corruption, stagnation, and political repression. In the rest of the world, expensive oil triggered a surge of investment in alternative energy and drastic improvements in energy efficiency. The 1973 oil shock holds an even greater irony. The panic that it induced brought sweeping changes to global energy policies in the 1970s and 1980s in preparation for the imminent depletion of global oil and gas reserves, which turned out to be illusory. The effort to avoid that imaginary crisis helped the non-OPEC countries cope with a real one, leading to energy conservation and investment policies that fortuitously brought about enormous reductions in global
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