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The Second Oil Crisis: Causes, Consequences

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ABSTRACT

In this study, we will consider the second oil crisis in 1978. First, we will briefly address the first oil crisis, and then we will examine the causes of the first oil crisis from the first crisis to the second crisis. In this study, we will include many events related to the second oil crisis.

INTRODUCTION

In this article, we will cover many issues related to the second oil crisis. First, shortly after the first oil crisis, then the history of oil in the 1970s, the 1978 oil crisis, the causes of the second oil crisis, and the Iranian revolution of 1979, We will learn about Iran’s 1979 revolution in the U.S. and global oil markets, some numbers in the second oil crisis, and the impact of the oil crisis on cars.

What is the 1973 Oil Crisis?

The 1973 oil crisis is an oil crisis based on political reasons before the Arab wars with Israel began completely. It is an event that the Arabs use as a trump card in the world economy against Western countries, resulting in an oil crisis around the world. It is a crisis that arises because the Arabs want to use oil as leverage against the advancing and developing Western countries.

1973 Oil Crisis and its Consequences

The 1973 oil crisis was one of the key events that determined the future direction of international relations. However, the effects of this crisis have also been seen in different sciences and disciplines and have led to the evaluation of new approaches and policies in private States. In the text of this study, the process that led to the oil crisis, which is quite extensive in the relevant article, and then tries to explain the medium and long-term consequences in terms of International Relations and the economy.

OPEC and the Oil Crisis

On October 15, 1973, the oil embargo was announced by the Union of Arab Petroleum Exporting Countries OAPEC (OAPEC consists of OPEC member Arab countries and Egypt and Syria) in response to the US support of the Israeli army in the Yom Kippur War is called. OAPEC declares that it will no longer export oil to countries that have sided with the United States and Israel in the war. However, OPEC member countries decide to increase the resources entering their countries by rising world oil prices. As the developed country’s industries depend on oil, they are the leading customers of OPEC countries. The astonishing rise in oil prices in 1973 and the collapse of the stock market in 1973-1974 was a global economic crisis since the crisis of 1929 and had mechanisms and long-term effects that could not be explained only by price increases.

When OPEC was established, oil resources in almost all oil-producing countries were operated by Western and especially American oil companies, according to Western technology. A second point is this: the price of crude oil, which has risen to $ 34 a barrel today, that is, at the beginning of 1982, is $ 1.80 a barrel for Middle Eastern oil in January 1970 and $ 2.17 for higher-skilled Libyan oil. However, OPEC did not do anything until the 1973 Arab-Israeli War. However, since 1970, the trend of confiscating oil companies has begun in almost all Middle Eastern countries. Iraq, for example, fully nationalized the Iraq Petroleum Company in 1972. Iran did almost the same in 1973, turning oil companies into just one manager, putting production entirely in the hands of the Iranian National Corporation (INOC). Other Arab countries and, in particular, Persian Gulf countries have also increased their stake in foreign companies

History of oil

Developments in Iran and Iraq in 1979 and 1980 led to another period of rising ham petrol prices. June 1979 November 1978 to June 1979, during the Islamic Revolution in Iran, daily oil production caused a loss of 2-2.5 million barrels. At one point production almost stopped. On the other hand, throughout the Iran-Iraq War, Kuwait provided billions of dollars in aid to Iraq. But the fact that oil and money will never be enough to ensure the security of the country, and that military power cannot replace it, was demonstrated by the Iraqi invasion of Kuwait in 1990. The Islamic Revolution of Iran, like many revolutions, was a political, social, and economic phenomenon that took place at the end of a process in which a large anti-regime group was formed with the accumulation of many problems that were not based on just one factor. On the other hand, this revolution is one of the main reasons for the high prices in the post-World War II period. But the impact of the revolution on prices would not last very long due to events that developed later. In fact, immediately after the revolution, Iranian production increased to 4 million barrels per day (Bayraktaroğlu, 2016).

1978 Oil Crisis

The second oil crisis of 1978-79, the second of two oil crises in the 1970s, led society to panic about the potential lack of gasoline. It has hit very high prices for crude oil and refined products. Oil production fell by as much as 7%, but a short-term supply outage caused panic in prices and an increase in gas stations. The oil crisis of 1978 saw global crude oil supplies greatly reduced after the fall of Shah Mohammad Reza Pahlavi, the Ruler of the Iranian state from early 1978 to early 1979. It nearly doubled in 12 months to $ 39.50 a barrel.

Causes of the Second Oil Crisis

Between 1970 and 1974, the oil industry underwent revolutionary economic changes. Oil pricing decisions have traditionally been initiated by international oil partnerships. This situation was taken over by OPEC members. Oil exporting countries have increasingly nationalized their private oil production stocks, achieving most of the savings. OPEC members have raised oil prices four times, cut production, and imposed a ban on shipments to the United States for political reasons (embargo). These moves have brought about fundamental changes in the countries ‘ energy policies, international balances of payments, and the role of multinational oil partnerships. The Sunday Age that determines cheap oil and oil prices and production was now closed. With the oil crises of 1973-1977, oil-producing countries caused developed countries to use oil to experience economic difficulties. During this period, for the first time, oil was used as an effective political weapon against Western countries that supported Israel’s expansionist policy, but this was short-lived due to the failure of oil-producing states to form a political union. 

The region, which holds more than half of the world’s oil exports, has experienced political instability and the effectiveness of multinational companies has been successful. In the continuation of the oil crises, the United States has been directly involved in regional policies and has established close relations with oil-rich states such as Saudi Arabia, The Force, and the UAE. The 400% price increase in 1974 forced the production systems of industrialized countries, especially the United States, to be structured according to cheap oil. In order to prevent profits and wages from falling below their true value, increases in oil prices began to be reflected in costs. Rising costs have caused inflation to accelerate. Payments to oil, which had an inflexible demand structure, absorbed much of the purchasing power in the importing countries, significantly reducing demand for other goods. The second oil crisis of 1978-1979 produce a different effect than the first one corresponds to the resulting crisis, Keynesian theory (demand must be animated by lack of means of increasing public expenditure based on the principle approach) the lack of any explanation in the framework of evaluating theories that led to the crisis in a different way and brings solutions. Structuralists, Monetarists, proponents of supply economics, and The Theory of Rational Expectations have emerged as a product of the inability of analyses based on-demand orientation to explain the new formation. We see Iran as the leading player in the second oil crisis. Oil revenues were Iran’s most important source of income. The policies of modernizing Iranian society and industrializing the economy increased Iran’s dependence on Natural Resources. The oil economy and policy also influenced Iran’s foreign and national security policies. The increasing role of oil in the economy has led to the strengthening (economization) of the economic dimension of foreign policy. During the Shah’s reign, encouraging foreign direct investment, establishing foreign trade zones, and establishing deep economic relations with the Western world became the main goals of Iranian foreign policy.

1979 Iranian Islamic Revolution

In Iran, there was a supply crisis in oil with the fall of the Shah and the establishment of a Sharia state in its place. In order to overcome the obstacle of high oil price increases, developing countries have had to increase investment in the energy sector. The price of crude oil rose from $ 2.5 to $ 11.6, shaking the balance in the world economy, leading to an increase in the foreign trade deficit in countries that are oil importers.

What Iran’s 1979 Revolution Meant for the U.S. and Global Oil Markets?

The Iranian revolution triggered the second world oil crisis in five years. Strikes began in Iran’s oilfields in the fall of 1978, and crude oil production fell by 4.8 million barrels per day in January 1979, or about 7 percent of world production at the time. Other producers were able to make up a fraction of the volume, resulting in a net supply loss of about 4 to 5 percent. However, there was a noticeable increase in oil prices, and by mid-1979 the price of barrels rose from $ 13 per barrel to $ 34 per barrel in mid-1980.

Some Figures in the Second Oil Crisis

The Great ‘Oil Crisis’ of the summer of 1979 could well go down in history as one of the greatest fraudulent incidents against a desperate person. The truth is that there was no shortage of oil; this is confirmed by all responsible sources. In fact, solid statistics show that in 1978 there were no gas lines, and disappointed motor vehicles did not die; in a word, there was more oil than when there was no ‘crisis’. On the night of Sunday, July 15, President Carter’s sermons on the mountain ignored this fact. He insisted that the fault is ‘real.’ Admitting that this does not require Big Oil and President Carter to be criminalized by the lamented Department of Energy. The naive might say to themselves ‘why can’t this happen.’ So let’s start by referring to a few sources: The Federal Trade Commission study concluded on May 30 that gasoline supply increased from 4 to 8 percent (depending on the month of comparison) in the first four months of 1979 compared to the comparable period. . In 1978. US Customs figures independently verified by House inspectors show that the ‘Iran deficit’ was too common to confirm the ‘crisis’ because oil imports actually increased by 10 in the first five months of 1979. A world energy assessment conducted by the Central Intelligence Agency shows that world oil production increased in the first quarter of 1979, despite the disruption from Iran, compared to 1978.

1979 Oil Crisis meant Recession for us, Depression for Cars

Car sales were on the rise in 1979. Domestic vehicle sales rose 23 percent in the first 10 days of the year. Then everything fell apart. On January 16, 1979, the Shah of Iran was overthrown and Ayatollah Khomeini came to power. It cut Iran’s oil production, which in turn reduced crude shipments to the United States. Gasoline prices rose and the American economy fell into recession. Gasoline shortages and the threat of report cards have created long queues at gas stations. It was all over again 1973-74. The recession brought double-digit inflation and pushed interest rates up to 20 percent. Consumer confidence has flown away. What was a recession for the rest of the country was a depression for the auto industry. The oil crisis has finally forced U.S. automakers to address quality and gas mileage issues.

CONCLUSION

In this article, we evaluated the second oil crisis. Thanks to our article, we have found findings on many issues. Thanks to this research, I learned a lot. For example, the first oil crisis, the history of oil in the 1970s, the oil crisis of 1978 second oil crisis the causes of the 1979 Iranian Revolution the revolution in 1979 in Iran, the U.S. and global oil markets, the oil crisis second oil crisis some figures and I have acquired a lot of information about the impact on cars.

REFERENCES

  1. Finans Admin, (2020), What is the 1973 Oil Crisis? https://www.ekoarea.com/1973-petrol-krizi-nedenleri-ve-sonuclari-irak-araplar-israil-ve-opec/
  2. Örki, Armağan (2019), 1973 Oil Crisis and its Consequences https://www.researchgate.net/publication/337211970_1973_PETROL_KRIZI_VE_SONUCLARI
  3. Tuiç Akademi, (2011), OPEC and the Oil Crisis
  4. http://www.tuicakademi.org/opec-ve-petrol-krizi/
  5. Bayraktaroğlu, Melis (2016), History of oil
  6. https://www.milliyet.com.tr/dunya/piyasalar-alt-ust-petrolun-tarihi-2184314
  7. Chen, James (2019), 1978 Oil Crisis https://www.investopedia.com/terms/1/1979-energy-crisis.asp
  8. Arzova, S.Burak (2019), Causes of the Second Oil Crisis https://www.researchgate.net/publication/331976534_Ikinci_Petrol_Krizi_Nedenleri_Dunya_ve_Turkiye_Ekonomisine_Etkileri
  9. Tesad, (2020), 1979 Iranian Islamic Revolution https://www.tesadernegi.org/yakin-tarihteki-petrol-krizleri-ve-etkileri.html?7106ac&7106ac
  10. Gross, Samantha (2019), What Iran’s 1979 Revolution Meant for the U.S. and Global Oil Markets? https://www.brookings.edu/blog/order-from-chaos/2019/03/05/what-irans-1979-revolution-meant-for-us-and-global-oil-markets/
  11. Cook, Fred J. (1979), Some Figures in the Second Oil Crisis https://www.washingtonpost.com/archive/opinions/1979/07/29/that-great-oil-crisis-of-79-the-numbers-spell-out-fraud/60970baf-a36a-4d8b-9804-7753c1cb3493/
  12. Sawyers, Arlena (2013), 1979 Oil Crisis meant Recession for us, Depression for Cars https://www.autonews.com/article/20131013/GLOBAL/310139997/1979-oil-shock-meant-recession-for-u-s-depression-for-autos

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