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Oil Embargo: Its Effects on the Price, Supply and Demand of Oil in the US - Essay Example

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Oil Embargo: Its Effects on the Price, Supply and Demand of Oil in the US

The primary effect of the oil embargo was price increase, not supply disruption. Although countries such as the US, Netherlands, France and Britain experienced very tight oil supplies, and countries who continue to ally themselves with Israel suffered even more repercussion in terms of provision of oil supply, this strategy did not succeed in winning their political demands against Israel. Nevertheless, the Arabs grew enormously wealthy from the oil embargo.
On the other hand, countries started looking for other potential sources of oil. Old fields were expanded and new fields were discovered such that supply of crude oil increased. This likewise resulted to other sources of oil such that the Middle East was no longer the dominant world supplier of oil. These transformations changed the position of the Middle East particularly in their strategy of using oil as a weapon. Saudi Arabia has disavowed this practice since the country, including others in the Middle East need the cash flow from their oil.
During the past 25 years, the nominal price of gasoline for the United States has risen at an average annual rate of 5.2% and the real price of gasoline rose only one-fourth of a percent per year. Gasoline prices reached a peak in 1981 and declined thereafter despite increase in real taxes. ...Show more

Summary

In October 16, 1973, the Organization of Petroleum Exporting Countries (OPEC) led by Saudi Arabia cut production and placed an embargo on shipments of crude oil to Western countries particularly the US and the Netherlands and a total boycott in Israel. This was a political strategy connected with the Yom Kippur War…
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Oil Embargo: Its Effects on the Price, Supply and Demand of Oil in the US essay example
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