1973 Energy Crisis: Oil Prices Soared to $11.65 per Barrel - Impact and Legacy in 2025

Adam Hayes, Ph.D., CFA, brings over 15 years of Wall Street experience as a derivatives trader and expert in economics and behavioral finance. Holding advanced degrees from The New School for Social Research and University of Wisconsin-Madison, Adam teaches economic sociology and finance studies at Hebrew University, Jerusalem.

What Triggered the 1973 Energy Crisis?

The 1973 Energy Crisis, often called the Oil Shock of 1973–74, marked a dramatic surge in energy prices and severe fuel shortages. This crisis was ignited when Arab oil-exporting nations imposed an embargo on the United States following its support for Israel during the Yom Kippur War. Within a year, oil prices nearly quadrupled, skyrocketing from approximately $2.90 to $11.65 per barrel.

Although the embargo was lifted in early 1974, the economic repercussions fueled inflation and stagflation throughout the 1970s. This event was a pivotal moment that exposed the vulnerabilities of global energy dependence and set the stage for future energy policies.

The decade also saw a second energy shock in 1979, triggered by the Iranian Revolution and the fall of the Shah.

Key Insights

• The 1973 crisis caused a sharp spike in oil prices and widespread fuel shortages in the U.S.
• The Organization of the Petroleum Exporting Countries (OPEC) enacted an embargo against the U.S. as retaliation for its support of Israel.
• The embargo led to rationing, long gas station lines, and a surge in gasoline prices by about 36% within a year.
• While the embargo ended in 1974, elevated oil prices persisted, contributing to global inflation and economic challenges.
• Experts agree the crisis was a major factor in the stagflation that plagued the U.S. economy during the 1970s.

Deep Dive: The Mechanics of the 1973 Oil Shock

On October 19, 1973, after President Nixon authorized $2.2 billion in emergency aid to Israel amidst the Yom Kippur War, OPEC countries halted oil exports to the U.S. This embargo drastically reduced Arab crude oil supplies, leading to immediate production cuts.

Pre-embargo, oil traded near $2.90 per barrel; by January 1974, prices surged to $11.65. Gasoline prices in the U.S. jumped from 39 cents to 53 cents per gallon, sparking rationing and long queues at pumps. Panic buying worsened shortages.

The U.S. faced limited options to increase domestic oil production quickly, as developing new oil fields requires significant time and investment.

Though the embargo was lifted in March 1974, elevated oil prices remained, fueling inflation across the economy.

Context Matters

The embargo was both a geopolitical weapon in the Arab-Israeli conflict and a strategic move by oil-producing nations to challenge the dominance of American oil companies over the global market.

Multiple Factors Behind the Crisis

The 1973 energy crisis was not solely due to U.S. support for Israel. A longstanding struggle existed between OPEC nations and U.S. oil conglomerates over control of oil resources and pricing. OPEC leveraged the conflict to assert geopolitical influence.

Inflation had been rising since 1970, with commodity prices increasing around 10% annually. The oil embargo intensified these pressures, accelerating inflation and economic instability.

Federal Reserve Chairman Arthur Burns in 1979 highlighted multiple causes for the inflation spike, including loose war financing, dollar devaluations, global economic booms, crop failures, soaring food prices, oil price shocks, and declining productivity.

Stagflation: The Economic Puzzle of the 1970s

The energy crisis contributed to stagflation—an unusual economic condition combining high inflation with stagnant growth and rising unemployment. This contradicted traditional economic theories which expected inflation and unemployment to move inversely.

Higher oil prices increased transportation and manufacturing costs, even as layoffs rose, challenging existing economic models like the Phillips curve.

Similar dynamics may be observed in modern contexts, such as energy disruptions following geopolitical conflicts like the 2022 Russian invasion of Ukraine.

Why Did Arab Nations Embargo Oil Exports to the U.S.?

Arab oil producers viewed U.S. political and economic support for Israel during the Yom Kippur War as antagonistic, prompting them to use oil exports as leverage. OPEC also sought to increase its bargaining power against Western oil companies.

Long-Term Impacts of the 1973 Energy Crisis

Though the embargo lasted only months, elevated oil prices persisted throughout the 1970s. This led to measures like reducing the national speed limit to 55 mph to conserve fuel and extending daylight saving time to reduce energy consumption.

More significantly, the crisis spurred legislative action to boost domestic oil production and establish strategic petroleum reserves, reducing reliance on foreign oil.

It also ignited early environmental awareness and initiatives.

Growth of the Service Sector Post-1973 Crisis

The 1970s saw significant employment growth in service industries, partly attributed to the energy crisis. Manufacturing jobs stagnated or declined, while service sector jobs, often lower-paying, expanded rapidly.

Conclusion: Could a 1973-Style Crisis Happen Today?

A repeat of the 1973 energy crisis is unlikely. In 2024, the U.S. imports only about 11% of its petroleum from OPEC, down from 70% in 1973, with over half of imports coming from Canada. The U.S. is also a net exporter of petroleum products, enhancing energy security.

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