The ongoing Iran war has unleashed one of the most severe energy shocks in decades. Our five-part series explores decisive moments when turmoil in the energy world changed the trajectory of geopolitics. Barrels and Power - Part 4 With no let-up in the escalating Iran-U.S.-Israel conflict, talk of $200 oil has leapt from fringe alarm to boardroom concern, as disruptions around the Strait of Hormuz - artery to nearly a fifth of global supply – continue to rattle markets. The current scenario has a near-mirror reflection in the events of October 1973, when a regional war in the Middle East spiralled into a global energy crisis and profoundly altered the oil hierarchy. Anwar Sadat The decades after the second world war belonged to what historian and energy pundit Daniel Yergin called the ‘Hydrocarbon Man.’ Between 1949 and 1972, while global energy consumption more than tripled, the demand for oil surged over fivefold. Nowhere was this more visible than in the industrial world’s newfound affluence. In America, consumption of oil tripled while Western Europe’s appetite multiplied fifteen times. Japan’s hunger for oil surged by an astonishing 137-fold. Rising prosperity brought with it a revolution in consumption. In his opus ‘The Prize’ (1990), Yergin observes that the number of vehicles in America rose from 45 million in the late 1940s to a staggering 119 million by the early 1970s. King Faisal Cheap oil underwrote it all. It powered not just industry but a way of life - air-conditioned, motorised and increasingly energy-intensive. And because oil was abundant and inexpensive, most Americans took it as a birthright. False Complacency Even geopolitical shocks seemed unable to shake this complacency. The Arab embargo that had followed the Six-Day War of 1967 had proved largely ineffective. In fact, the biggest losers had been the producers themselves, who had forfeited revenues without achieving political gains. For many in the West, this episode reinforced a comforting illusion that oil supply was secure and ultimately apolitical. By the early 1970s, however, this illusion was beginning to fray. Demand was catching up with supply, thus eroding the surplus that had persisted for two decades. The United States, once the world’s swing producer, ran out of spare capacity. At the same time, structural tensions were mounting as oil-exporting countries in the Middle East, becoming increasingly assertive, sought a larger share of rising revenues. Producers, led by more radical members such as Libya and Iraq, pushed to rewrite the rules of the game as nationalisations followed. In September 1973, Libya under Muammar Gaddafi seized majority control of remaining foreign operations, confident that a tight market would absorb its output. The geopolitical backdrop was equally combustible. After the death of Gamal Abdel Nasser, Anwar Sadat had inherited an atrophied Egypt that was economically strained and militarily overextended. Determined to restore national pride and break the deadlock with Israel, Sadat ominously concluded that only force could reset the equation. Having consolidated power at home and expelled Nasser’s Soviet advisers, Sadat prepared, in concert with Syria’s Hafez al-Assad, for war. Crucially, he ensured the backing of Saudi Arabia’s King Faisal, thereby bringing oil into the strategic calculus. And when the joint Egyptian-Syrian attack finally came on Yom Kippur day on October 6, 1973, it was swift and shocking. Egyptian and Syrian forces launched coordinated attacks on Israeli positions, igniting the most intense Arab-Israeli conflict since 1948. Yet the most consequential weapon was deployed on the battlefield. It was oil. Through embargoes and production cuts, Arab producers sought to wield their resource as leverage, thus transforming a regional war into a global economic crisis. As Henry Kissinger later observed, the crisis altered irrevocably the post-war order. The timing was decisive. For the first time in the post-war era, the oil market was tight, vulnerable to disruption and heavily dependent on the Middle East. But even before the 1973 crisis, shortages loomed and prices were rising. America had scrapped import quotas, acknowledging that domestic production could no longer satisfy demand while independent refiners struggled to secure supplies. The system was primed for rupture. The Saudi Calculus Since the 1950s, Arab leaders had toyed with the notion of an ‘oil weapon’ against Israel and its Western backers. But for years, it remained more rhetoric than reality. So long as America held spare capacity, the weapon lacked an edge. By the early 1970s, that equation had reversed. The United States had reached full production and its ability to stabilise markets had vanished. In its place, Saudi Arabia emerged as the new swing producer. Gulf oil, once supplementary, had become indispensable and with it, the long-mooted weaponization of oil acquired real force. Even so, despite Sadat’s importunations, King Faisal was initially reluctant to wield it. While he was deeply hostile to Israel, he nonetheless regarded oil embargoes as both futile and dangerous, a lesson reinforced by the failure of 1967. Furthermore, Saudi Arabia’s security and prosperity were closely tied to the United States. Hence, antagonising Washington seemed imprudent, especially amid the spread of radical, often Marxist, movements across the Arab world that threatened monarchies like his own. What finally changed Faisal’s calculus was a convergence of markets and politics. As oil demand surged, prices rose and Saudi Arabia’s share of exports climbed sharply, enhancing its leverage. Meanwhile, currency devaluations eroded the value of dollar-denominated reserves, and production curbs by others tightened supply further. In short, the market was amplifying Saudi power. At the same time, regional dynamics shifted. Anwar Sadat, unlike his predecessor Nasser, sought not pan-Arab revolution but Egyptian revival. He cultivated ties with Riyadh and pressed Faisal to consider oil as a strategic tool. Without Saudi backing, Egypt risked drifting back into Soviet dependence—an outcome Riyadh was keen to avoid. By 1973, Saudi signalling had grown sharper. Officials warned that production would not expand to meet Western demand unless Washington moderated its support for Israel. When Sadat visited Riyadh in August with plans for a surprise attack, Faisal agreed to support him both financially and strategically. Oil would, if necessary, be deployed. Intelligence Failure As war approached, intelligence hinted at imminent conflict while Soviet evacuations from Egypt and Syria provided further clues. Yet, both Israel and the United States dismissed the likelihood of war, misreading Sadat as a bluffer rather than a strategist. Moreover, earlier false alarms had dulled Israeli vigilance, while carefully staged distractions on part of the Egyptians diverted attention at critical moments. When the attack came on Yom Kippur, it achieved a near-total surprise. Israeli forces, constrained from pre-emption and misled on timing, were initially overwhelmed. For Washington, the initial objective was containment. President Richard Nixon and Secretary of State Henry Kissinger sought a ceasefire that would restore the status quo, avoiding superpower confrontation. But the battlefield told a different story as Israel’s position was more precarious than anticipated. Ammunition was being consumed at a rate that threatened exhaustion within days. Israeli Prime Minister Golda Meir appealed urgently to Washington while war hawk Moshe Dayan warned that “the Third Temple is going under.” As the Soviet Union mounted a vast airlift to Egypt and Syria, the balance threatened to tilt decisively. By October 11, American leaders concluded that without urgent intervention, Israel might lose. The United States launched a massive airlift to aid Israel. To Arab leaders, the message was unmistakable: Washington had aligned itself openly with Israel On the battlefield, Israel stabilised the front and soon counterattacked. At almost the same moment, another drama was unfolding far from the battlefield in Kuwait where Gulf producers, meeting on October 16, unilaterally raised the price of oil by 70 percent, asserting full control over pricing for the first time. The shift was historic: power had passed definitively from the companies to the exporters. American assurances of seeking a ceasefire could not offset the impact of visible military support for Israel. On October 19, President Richard Nixon announced a substantial aid package and within hours, the Gulf producers began targeting the United States directly. By October 20, Saudi Arabia and other Arab exporters imposed a full embargo on oil shipments to America. The oil weapon, once blunted by abundance, was unleashed in a tight market and with it, the three-decade old postwar petroleum order lay dead. Domestic Scandal As war raged in the Middle East and the oil crisis deepened, the United States was distracted by a drama at home. What Nixon had dismissed as a minor burglary had metastasised into the Watergate scandal, consuming his presidency. The effect was surreal: on the very days when Israel teetered on the brink, Washington was preoccupied with the resignation of Vice-President Spiro Agnew and the elevation of Gerald Ford as his replacement. This domestic turmoil hollowed out American leadership at a moment of global crisis. Authority drifted instead to Henry Kissinger, who, combining roles as national-security adviser and secretary of state, became the principal steward of policy. Nixon’s diminished credibility constrained America’s ability to manage allies, adversaries and oil producers alike. To foreign capitals, the spectacle of Watergate was baffling, even as it was shaping the course of the merry-go-round of geopolitics. Meanwhile, though Kissinger professed little understanding of the commodity itself, he well grasped its strategic weight. In the months ahead, he would play a central role in containing the crisis. Worldwide Panic The closing months of 1973 offered a near-perfect recipe for panic brought on by the Yom Kippur War. Companies and consumers alike scrambled to secure oil supplies, not only for immediate use but to hoard against an unknowable future. Panic buying became its own accelerant, driving demand and prices ever higher. The crisis moved swiftly from markets to daily life. Oil that had recently sold for a few dollars a barrel was suddenly fetching three or four times as much. From $5.40 per barrel in October, oil climbed past $17 within weeks. In extreme cases, bids reached over $22 in a sixfold increase. But the shock rippled far beyond the United States. It unsettled the very foundations of post-war prosperity. Policymakers feared a toxic mix of inflation, stagnation and monetary disorder. For developing countries, the outlook darkened sharply. In the United States, the shock was more visceral. ‘Gas lines’ became the defining image of the 1973 crisis with cars stretching for blocks, stations running dry and rationing imposed on a society so accustomed to abundance that it appeared to have a meltdown when suddenly confronted with scarcity. In Europe and Japan, the psychological blow was immediate. Memories of post-war deprivation resurfaced. Governments scrambled to allocate dwindling supplies; industries bombarded ministries with pleas for fuel. In Japan, anxiety tipped into outright panic buying, with households hoarding everyday goods in scenes reminiscent of earlier decades of scarcity. For the industrial world, the crisis raised more existential questions. If cheap energy had been the glue of social stability, what would replace it? Could economic strain revive the political fractures of an earlier age? Half a century later, the ghost of 1973 continues to haunt the world energy order.
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