Why ongoing conflict has drawn comparisons with 1973 oil crisis, Pg17

Key Highlights:

• Oil prices are expected to remain high, around $100 per barrel, due to the ongoing conflict between the US and Israel against Iran.
• Shipping activity through the Strait of Hormuz has largely stopped, impacting oil exports from Gulf nations.
• The current crisis is compared to the 1973 oil crisis, but with a larger impact of blocking approximately 20 million bpd compared to 4.5 million bpd in 1973.
• In 1975, the US negotiated a deal with Saudi Arabia, establishing the "petrodollar" system.
• India's oil import bill increased from $414 million in 1973 to $1,350 million in 1974 due to the oil price shock.

Detailed Insights:

• The 1973 oil crisis was triggered by an OPEC embargo against countries supporting Israel during the Yom Kippur War, leading to production cuts and a ban on oil sales to the US.
• The US support for Israel, providing $2.2 billion in emergency aid, and the decoupling of the US dollar from gold in 1971 contributed to the OPEC decision.
• The Federal Reserve noted that the oil price manipulation in 1973 occurred during a period of rising wholesale prices and industrial component shortages, exacerbating the economic impact.
• The "petrodollar" arrangement required Saudi Arabia to price oil exclusively in dollars and reinvest surplus revenue in the US financial system, strengthening Washington's economic influence.
• India faced a significant increase in its oil import bill, leading to inflationary pressures, wage stagnation, and widespread protests, ultimately contributing to the imposition of the Emergency in 1975.

Key Concepts Involved:

• OPEC: An intergovernmental organization of 13 countries that coordinates and unifies the petroleum policies of its member countries.
• Strait of Hormuz: A narrow waterway between Oman and Iran, connecting the Persian Gulf and the Gulf of Oman, and a vital route for global oil shipments.
• Petrodollar: A US dollar earned through the sale of petroleum.