Elisabetta Bini, Giuliano Garavini, Federico Romero, eds. Oil Shock: The 1973 Crisis and Its Economic Legacy. International Library of Twentieth Century History Series. London: I. B. Tauris, 2016. 336 pp. $110.00 (cloth), ISBN 978-1-78453-556-8.
Reviewed by Nigel J. Ashton (London School of Economics)
Published on H-Diplo (April, 2017)
Commissioned by Seth Offenbach
The 1973 oil crisis represented a profound shock to the Western economic and political system. But in many respects it remains something of a puzzle. Contrary to the lingering impression of motorists waiting in line for gasoline and deserted roads, there never really was an actual shortage of oil. Nor did the crisis alone cause the shift in the balance of power between oil producing and consuming countries for which the 1970s are often remembered. The new assertiveness of oil producers predated the 1973 crisis and was reflected in the long drawn-out negotiations between the oil companies and the Organization of Petroleum Exporting Countries (OPEC) between 1970 and 1973. The malaise that afflicted Western economies by the mid-1970s had deeper causes than just those rooted in the crisis of 1973. So, one might in fact be tempted to argue that the 1973 oil shock was neither shocking nor actually about oil alone.
The principal value of this timely edited collection lies in the ways in which, while interrogating familiar assumptions about the crisis, it sets the events of 1973 effectively in context by examining longer-term economic and political trends. Going beyond the more familiar intergovernmental aspects of the crisis, the editors have assembled a wide-ranging collection of essays that analyze, among other aspects, the role of the major oil companies, the role of OPEC, the diversification of oil supply, nuclear energy, and the rise of environmentalism and consumer culture. The more familiar political aspects of the crisis are also investigated with contributions discussing the role of US Secretary of State Henry Kissinger, the rise of consumer cooperation through the Organisation for Economic Co-operation and Development (OECD), and the position of the Soviet Union with regard to the crisis. In a useful, if brief, introduction, the editors draw out six key themes: the position of the oil crisis as the end point of changes that had started earlier, the role of the crisis as a deliberate attempt by OPEC to change the balance of power in favor of raw material producers, the end of the oil concession system as the core of the shock, the consequences of the shock for Atlantic bloc relations, the oil shock as an East-West as well as a North-South crisis, and finally the connections between the shock and a spreading conservationist culture.
On the political side, Christopher Dietrich’s contribution addresses Kissinger’s oil diplomacy and finds it wanting. Kissinger, of course, was no fan of economists or economics, which he famously referred to as the “paradise of the second rate.” The fact that this opinion was born primarily from ignorance is amply reflected in Dietrich’s analysis. For Dietrich, Kissinger’s policy toward Saudi Arabia between 1973 and 1974 represented a “failure not just of diplomacy but of understanding. Kissinger underestimated the closeness of Saudi oil policy to that of its counterparts in OPEC” (p. 55). Kissinger’s idea that so-called moderate producing states, such as Saudi Arabia, could be separated from “radicals,” such as Libya or Iraq, was a mirage. By 1973, OPEC had forged a common approach designed to advance producer interests. While the boycott that followed the October 1973 Arab-Israeli war was an initiative of the Arab oil producers within OPEC, the drive to advance producer interests in what were termed “changing circumstances” was more broadly based and predated the crisis.
In terms of the broader cooperation between consumer nations that might to some extent have counterbalanced the influence of OPEC, Marloes Beers shows in her piece on the OECD Oil Committee that attempts to institute consumer cooperation in the face of the OPEC drive for higher prices during 1972-73 were largely stillborn. Once the oil shock hit, the Arab oil producers were able successfully to use the tactic of divide and rule in blunting consumer cooperation. Divisions within the European Economic Community (EEC) meant that it could not forge a common response. Meanwhile transatlantic tensions over the Arab-Israeli conflict and the ensuing peace process meant that the United States was wary of any joint EEC approach, fearing that it might be too pro-Arab and derail the postwar peace negotiations.
By this stage, the oil companies, which the consumer nations expected to act in their interests, had largely adopted an approach of simply retreating in the face of producer demands and passing higher prices on to consumers. As Francesco Petrini shows in his piece, the era of cheap oil in the 1950s and 1960s had not been good for the companies that had seen their profit margins steadily decline. While the end of the concession system certainly greatly reduced the influence of the companies, they shed crocodile tears for its demise, since the ensuing dramatic price rises allowed them partially to restore their dented profit margins.
A further important response to the demonstration of OPEC power in the wake of the 1973 shock lay in the development of non-OPEC sources of oil production. The implications of the development of new sources of production in the North Sea and Alaska are explored in the contributions by Tyler Priest and Bernard Mommer. Mommer’s piece is particularly valuable in showing how the crisis ushered in a new era in the history of international oil characterized by a framework produced by Britain. The so-called British Reference was designed “to set an example to a globalized world, with the natural resource being conceived as a free gift of nature to global consumers” (p. 27). So, under the British Reference, concessions would be awarded to oil companies according to their investment and production plans. According to Mommer, “the game was all about maximizing production” (p. 26).
In terms of the bigger economic picture, William Glenn Gray’s contribution shows how the world economy adapted to recycle Petrodollars and how the shock doomed any attempt to restore the Bretton Woods system of fixed exchange rates. Meanwhile Oscar Sanchez-Sibony’s essay on Soviet economic integration reflects on how the 1973 crisis brought to fruition processes that were already underway in terms of the energy integration of East and West. This is perhaps one area in which the mission of the volume to integrate East and West alongside North and South in the history of the oil shock does not quite work. The main thrust of Sanchez-Sibony’s argument is, in fact, to show that this process took place largely independent of the impact of the crisis itself.
Finally, in terms of the cultural impact of the shock, Brian Black explores the greening of American culture, while Martin Melosi examines nuclear energy and the rise of environmentalism in the United States. Black raises questions about the longer-term impact of the shock, showing how the initial turn to thrifty vehicles was soon replaced in the 1990s by the return of the gas-guzzler in the guise of the SUV. However, in the contemporary turn to hybrid and electric vehicles he sees the longer-term implications of the 1973 shock reasserting themselves. Meanwhile Melosi’s essay on nuclear energy and the rise of environmentalism in the United States shows that the difficulties of the nuclear industry indirectly owed much to the oil shock since the capital investment required in nuclear plants in the era of high interest rates that followed the oil shock was rendered unattractive. But to a large extent, the problems of the nuclear industry revolved around the concerns of safety and environmental damage, the debate about which was largely unaffected by the crisis.
As with any edited volume there are limitations to the ground that can be covered here. The contributions on American consumer culture and environmentalism beg a broader international comparison. On the political side, while Kissinger was clearly a key international player during and after the crisis, it would have been interesting to see a greater Arab perspective injected into the consideration of the crisis. Philippe Tristani’s piece on Iraq and the oil Cold War is something of a disappointment in this respect since it mainly focuses on narrating developments in the Iraqi oil industry between 1958 and 1972. In terms of the presentation of the volume, the editors might have pruned the end material more ruthlessly since a number of contributors indulge in the use of excessively long, discursive footnotes. However, these are minor blemishes to what is overall a groundbreaking, wide-ranging, and thought-provoking volume.
Printable Version: http://www.h-net.org/reviews/showpdf.php?id=48146
Citation: Nigel J. Ashton. Review of Bini, Elisabetta; Garavini, Giuliano; Romero, Federico, eds., Oil Shock: The 1973 Crisis and Its Economic Legacy. H-Diplo, H-Net Reviews. April, 2017.