1973 — The Day Oil Became a Weapon

By the end of our last installment, the producing nations had won a weapon — “unity” — and seized a share of the initiative at the bargaining table. But that was still a matter within the bounds of commerce. Oil remained, after all, a “commodity to be bought and sold.”

In the autumn of 1973, that rule was rewritten overnight. Oil was no longer a commodity but something placed on the extension line of military action — it became “a weapon of politics.” This is the story of the few dozen days in which the world was made to understand that for the first time.

October 6: war breaks out

On October 6, 1973, Egypt and Syria launched a surprise attack on Israel, and the Yom Kippur War began. The assault was timed to a Jewish holy day (Yom Kippur). The fighting swung back and forth, and as the United States and the Soviet Union backed Israel and the Arab side respectively, the war spread into an international confrontation that reached far beyond the Middle East.

At that moment, the Arab oil producers realized something. They held another weapon, far more powerful than any tank or fighter jet — the valve on a substance the world could not move without: oil.

Two triggers — the price hike and the embargo

The cards the producers played came almost at once, and there were two of them.

The first was the price hike. On October 16, 1973, the six Persian Gulf members of OPEC announced they would raise the posted price of crude from around $3 a barrel to about $5 — a jump of roughly 70 percent all at once. And this time the decisive point was that the price was not negotiated with the majors; the producing nations set it themselves and simply gave notice. “What the price will be is for us to decide” — the pendulum that had begun to tilt with the Tehran Agreement now fell completely to the producers’ side.

The second was the embargo and production cuts. The next day, October 17, the Organization of Arab Petroleum Exporting Countries (OAPEC) decided on phased reductions in crude production and, one after another, declared it would halt exports to nations supporting Israel — the United States, the Netherlands, and others. They had begun to wield oil as a political tool: “sell to friends, withhold from foes.”

That distinction quietly redrew the diplomatic map of the world. Show a pro-Arab posture and the oil flowed; be seen as pro-Israel and the tap was turned off. The governments of Europe and Japan were forced to rethink, in haste, how they had approached the Middle East. Without firing a single shot, the producing nations had moved the very foreign policy of other countries. The power of oil “as a weapon” lay not in the bullet but in the threat to stop the flow itself.

And then, at year’s end, on December 23, 1973, the six Gulf states decided to raise the price still further — to about $11.65 — from the start of the new year. More than double the roughly $5 of October. Set against the roughly $3 at the year’s opening, crude had vaulted some fourfold in just three months. This was the First Oil Shock (the oil crisis).

The country where paper vanished — Japan’s frenzy

Prices had quadrupled, and supply might run thin. That news struck directly at nations that imported most of their energy. The shock was especially violent in Japan, which depended on the Middle East for nearly all of its oil.

In the late autumn of 1973, toilet paper and detergent suddenly disappeared from supermarket shelves across Japan. “If the oil stops, they won’t be able to make paper either” — that anxiety spread by word of mouth, and people rushed to hoard. In truth, paper was never going to run out, yet the very fear that it “might” produced a real shortage. This is the toilet paper panic, a story passed down for generations.

The turmoil did not stop at paper. The sudden surge in energy costs pushed up prices across the board, and the world economy sank into its first full-blown recession of the postwar era. The world was made to understand that the prosperity of the advanced nations, built on the premise of cheap oil, could be shaken by a single move from the producers.

The Japanese government turned off the neon signs in the streets, cut short late-night television broadcasts, and called for restraint in driving. It was the moment a country that had been racing through rapid economic growth first learned, in earnest, the word “energy conservation.” At the same time, the crisis became a turning point that prompted Japan to reconsider sourcing oil solely from the Middle East and to commit in earnest to nuclear power and energy-saving technology. The pain also became the medicine that retempered the nation’s industrial structure for the years ahead.

It was not only the consuming countries that were gripped by fear. The governments of America and Europe, too, felt keenly the danger of having their energy held by a single party, and moved toward coordinating among consumer nations to strengthen their defenses. Each built up national stockpiles and shared information on supply and demand — the idea of treating oil as “a security matter to be guarded even in peacetime” was born here.

In whose hands does the initiative lie

The greatest change this oil shock brought was not the numbers on the price tag. It was that the answer to the question “who controls the oil?” had been swapped out.

Until then, the parties that effectively set the price and volume of crude were the Western majors known as the Seven Sisters. As we saw in Part 4, they forced humiliation on the producing nations and crushed even a revolution. Yet in 1973 the producers set the price by their own will, throttled supply, and used oil for political ends. The majors could no longer be the lead players who set the price.

The Middle Eastern nations had, at last, grasped the tap of oil’s wealth with their own hands. Vast oil money flowed into the desert states, and the balance of the world’s power did indeed tilt their way.

But wealth promises no stability. Over the swollen oil revenues — and over who would use them and how — fresh fissures began to run within the Middle East itself. Next time, the stage returns to Iran. A single nation’s “revolution” will plunge the world, once again, into the terror of oil.