The 1973 Oil Price Shock and its Consequences

We are used to the ever-changing price of oil as one of the central indicators of the economy. Sometimes, the price is high, like in 2008, when a barrel cost over $120. Sometimes it is low (like in 2016 at $33/barrel). And sometimes somewhere in the middle (as it is now around $80/barrel). However, for almost three decades after World War II, permanently cheap energy fueled the post-war economic boom that has not seen its like again. Oil became the lifeblood of the global economy then and accounted for almost half of the global energy consumption in 1972. Initially, much of it came from American oil exports, but as American consumption grew, the country became an oil importer and the Middle Eastern countries picked up the baton as the leading oil exporters. But what would happen if that essential resource suddenly became expensive? The world found out during the oil price shocks of 1973. We’ll have a look at how the crisis came to happen and to be resolved, which short-term impacts it had, and how things turned out differently in the longer run. As always, expect board games!

The Crisis and its Solution

Relations between Israel and the Arab countries, the major exporters of oil by the mid-1970s, had been testy for decades. In 1948, 1956, and 1967, the tensions had turned into outright wars – all of which had been won (at least militarily) by Israel. Her resounding victory in 1967 had Israel occupy not only all of Jerusalem, Gaza and the West Bank (inhabited by Palestinians), but also the Sinai Peninsula (from Egypt) and the Golan Heights (from Syria). The smarting losers Egypt and Syria began making plans to win their lost territories back. Trying to catch Israel unaware, they attacked on the major Jewish holiday of Yom Kippur – Oct 6, 1973. Many board war games cover this conflict, most famously Yom Kippur (Dean Essig/Al Sandrick, The Gamers).

Yom Kippur

Box cover of Yom Kippur. The game deals with the front between Israel and Egypt around the Suez canal. Image ©The Gamers.

Initially, Egypt and Syria advanced so much that the Israeli government prepared for a nuclear counter-strike. But once more, the Israeli army seized control of the military situation. The date of the attack turned out to be a logistical advantage – most Israeli reservists were easily found at their homes or synagogues celebrating Yom Kippur, and as public life was at a standstill due to the holiday, no civilian traffic interfered with the mobilization. Israel’s most important ally, the United States, also came out strongly supportive of the beleaguered nation and established an emergency airlift of military hardware to Israel.
In reply to their military setbacks and US aid for Israel, the Arab countries resolved to weaponize their most important economic asset – oil. The Organization of Arab Oil Exporting Countries (OAPEC, a subset of OPEC, the Organization of Oil Exporting Countries) decided to cut their oil production by 5% per month and not sell oil at all anymore to the United States (and the Netherlands, the traditionally most pro-Israeli European country). They demanded that Israel return the territories captured in 1967, change the status of Jerusalem, and respect the rights of the Palestinians in return for the production cuts and the embargo to be lifted. Until mid-October, the oil price per barrel rose from three dollars to five – and would go up to twelve dollars within the next months. Suddenly, oil was not cheap anymore – but all the more political. The contemporary game (published 1974) Crude: The Oil Game (James J. St. Laurent, St. Laurent Games) reflects this sudden preoccupation with oil. The players are oil magnates out for profit. A good deal of the game is spent reacting to ever new political events and the change in the economy (often for the worse).


Box cover of Crude (in the 2012 Stronghold Games reprint). Very fittingly, the game came with 300 plastic miniatures – the basic resource for plastic is, of course, oil. Image ©Stronghold Games.

Not only businesspeople thought about how to deal best with the new oil situation. The US government seriously weighed various plans for military intervention in the Middle East, debating whether a small demonstration (just capturing Abu Dhabi) would suffice to coax the Arab states back into compliance again or if a large-scale strike was necessary. In the end, neither option was pursued as the US assumed that the attacked countries would destroy their drilling sites and the resulting production losses would be enough to keep the oil price high for years to come. The ever-up-to-current-events Jim Dunnigan, however, designed a board game shortly afterward (1975) that depicted just such an invasion (Oil War, SPI).

Oil War

Box cover of Oil War. This is SPI at their peak: A relevant topic made into a hex-and-counter wargame – and with some subtle political commentary: Note that that the cover image is an adaptation of the iconic Raising the Flag on Iwo Jima photograph from World War II! The difference between fighting for global freedom and fighting for oil security could not be starker. Image ©SPI.

Instead of an invasion, US Secretary of State Henry Kissinger helped to bring about an agreement between Israel and the Arab states. OAPEC lifted the embargo and increased oil production, and the price went down again. The age of permanently cheap oil, however, was over.


Western Woes: The Oil Crisis in the Short Term

The early 1970s were not exactly America’s most confident time. The Soviet Union had achieved nuclear parity and became more active in the Third World. Western Europe and Japan had turned into serious industrial competitors again. The withdrawal from Vietnam was the most shameful military setback in all of American history. The oil price shock fit into this narrative of a nation in decline – the most powerful country on earth at the mercy of some small Middle Eastern nations, and her citizens lining up at gas stations to get their limited amounts of fuel! This is the view of the crisis that Twilight Squabble’s (David J. Mortimer, Alderac) card event espouses.

1973 World Oil Shock

Card “1973 World Oil Shock” from Twilight Squabble. As is typical for the game, the card boils down the most important Cold War events to its most iconic essence – in this case, the lines at American gas stations. Image ©Alderac Entertainment Group.

The OAPEC measures were aimed at the United States, but they hit Western Europe more severely as the European countries depended almost exclusively on imports for their oil consumption. The 1970s consecutively became a decade of high inflation, rising unemployment, and stagnating economic growth in most of Western Europe. Wir sind das Volk!’s (Richard Sivél/Peer Sylvester, Histogame) Oil Crisis card captures this stagnation well: The loss of four (!) economy points often forces the West German player to spend several cards just to repair the damage. The effect becomes even more dangerous if West Germany is riddled with unrest and mass protests which prevent them from rebuilding – a situation that did not occur in real history, but which is certainly conceivable given the public upheaval of the late 1960s.

Oil Crisis

Card “1973 Oil Crisis” from Wir sind das Volk! The four economy points (yellow icons) which are destroyed in West Germany are the most of any card in the game. Image ©Histogame.

The European countries used different strategies to cope with the price hike. France, for example, relied on state intervention to secure energy supply. The administration expanded the nuclear energy sector, and cut bilateral oil import deals. Germany, on the other hand, saw the problem as one best tackled by industrial restructuring – making more efficient use of energy and using the revenue from the competitive export sector to pay for oil imports. Overall, no European country changed their Middle Eastern policy the way the Arab states had hoped to effect.


Card “OPEC” from Twilight Struggle. The card is the next best thing in terms of victory points after an advantageous scoring card for the USSR – but with none of the downsides of a scoring card. Soviet players can often score a crucial three to five VPs with the card. Image ©GMT Games.

In the short run, the Soviet Union seemed like the big winner of the oil crisis: Not only did their own oil exports soar in value, but they also reaped the windfall profits from increased arms exports to the Arab countries that had grown rich and willing to spend during the crisis. The Soviets spent the hard currency they earned in these ways on imports of grain and technology from the West. As a bonus, their relationship with the Arab countries improved – both due to deals they made and the common opposition to the United States. Twilight Struggle’s (Ananda Gupta/Jason Matthews, GMT Games) OPEC card plays on these windfall profits – every Soviet-controlled oil-exporting country earns Moscow a precious victory point.


In the Shadow of the Derricks: Oil, Money, and Politics into the 1980s

The countries most severely hit from the oil price shocks were neither in the West nor in the East, though. The developing countries of the global South did not only have to pay more for their oil imports, but also for their imports of manufactured goods from the industrialized countries in the global North, at a time when their own economies were faltering. Many countries in Africa and Latin America covered these additional expenses with loans from banks flush with the recently deposited petrodollars from the oil-producing countries. When the United States increased interest rates (the first time in 1979, and then during the 1980s), paying down these loans became a lot harder, and many – especially Latin American – countries experienced a national debt crisis as a result.


Card “Latin American Debt Crisis” from Twilight Struggle. The capital glut of the 1970s and the capital scarcity of the 1980s threw many countries of the global South into debt crises – especially in Latin America. Some of the pro-American regimes there had to abdicate due to the economic shortcomings of their administrations. Image ©GMT Games.

The United States, on the other hand, developed a special preoccupation with the Middle East. Before, this region from the sands of North Africa to the rocks of Persia had only been of middling importance to American planners, but now oil security was a crucial pillar of US foreign policy. The United States kept a close alliance with Iran (until the 1979 Islamic Revolution there) and developed one with Saudi-Arabia (especially after the revolution in Iran). This special American focus on the Middle East is carried over into a contemporary (published 1984) board game: Cold War (Lenny Glynn/John Prados, Victory Games): The world regions have an economic value ranging from one to four, save the Middle East, which alone is worth five points. What is more, whoever controls the Middle East receives five economic points from every other player every round. Jockeying for the Middle East can make up a good deal of the entire game’s dynamics. This particular US focus on the Middle East arguably only ended a few years ago. As the United States are now less dependent on oil imports due to the fracking boom (and weary of engagement in the Middle East after the long wars in Afghanistan and Iraq), President Obama reduced the American presence in the region. By now, the most important region for American interests is East Asia and the Pacific.

Cold War

Box cover of Cold War. Note the oil derrick standing in the Middle East. Image ©Victory Games.

In the late 1970s, the CIA prognosticated that the Soviet Union would reach the peak of her oil production in 1980. Under the assumption that the Soviets were just as fixated on the Middle East as America, the CIA therefore predicted them to make a move for the Middle East. The socialist revolution in Afghanistan in 1978 seemed to confirm these anxieties. One year later, President Carter authorized the support (and later the arming) of the Islamic insurgents against the socialist Afghan government.
Said government had never been firmly in control of the country, but the Islamic insurgency made it shake even more badly. After the Afghan leaders had appealed repeatedly to the Soviet Union for support in socialist solidarity, the Soviets finally intervened in December 1979. Then as now, Afghanistan was no country for a great power to exercise its superior might – poor, thinly populated, mountainous. As the insurgents were now supported by a coalition that ranged from the United States to a young Islamist firebrand from a rich Saudi family named Osama bin Laden, they had a steady flow of recruits and access to the most modern weapon systems. The Soviets got bogged down in a nine-year war they could not win – the “Soviet Vietnam”. Not very many board games have covered this war. One that garnered some attention (due to its original publication in Strategy & Tactics magazine) is Holy War: Afghanistan (Joseph Miranda, Decision Games).

Holy War Afghanistan

Magazine cover of Strategy & Tactics 147 (December 1991) in which Holy War: Afghanistan was originally published. The game has one of the lowest counter densities of any war game – a few Soviets, a few insurgents, and then the wide, vast mountains of Afghanistan.

The Afghanistan intervention, however, was just one example of how Soviet oil revenue lured them into rarely advantageous adventures in the Third World. After reaching nominal parity with the United States in the early 1970s, the Soviets now felt entitled to conduct global policy as well. One of their most egregious misadventures was to abandon their ally Somalia to align themselves with Somalia’s arch enemy Ethiopia (which drove Somalia straight into the American camp). The two countries then fought an inconclusive war which the Soviets bankrolled for Ethiopia. The prize of the war: The rocks of the Ogaden desert.
It was even more problematic for the Soviets that the abundance of oil revenue masked their structural economic problems. The Soviet economy had barely gained in per capita productivity during the 1970s. Despite being a traditional agricultural giant, the Soviet Union had to import grain. At the same time, the Soviet leadership under Leonid Brezhnev was bent on raising the standard of living for the Soviet citizens, and the population came to expect certain amenities which the country could not even afford in economically successful times. When oil prices dropped again by the mid-1980s, the Soviet economy crashed.

Short-term Gains, Long-term Losses

At first glance, the United States seemed to be the loser of the oil price shocks. However, the robust American economy (and the ample oil reserves in the US) allowed America to weather the economic impact. The Soviet Union, on the other hand, was lured into boxing above her weight by the beneficial economic and political circumstances of the 1970s. When these circumstances changed in the 1980s, the Soviet Union collapsed. Once more, the Cold War showed itself to be a marathon, not a sprint. The board games which depict the oil crisis as an event within this larger marathon only show the short-term impacts. It is up to the players to devise coping strategies like the US or Western Europe and avoid the Soviet mistake of overextension.

Games Referenced

Yom Kippur (Dean Essig/Al Sandrick, The Gamers)
Crude: The Oil Game (James J. St. Laurent, St. Laurent Games)
Oil War (Jim Dunnigan, SPI)
Twilight Squabble (David J. Mortimer, Alderac)
Wir sind das Volk! (Richard Sivél/Peer Sylvester, Histogame)
Twilight Struggle (Ananda Gupta/Jason Matthews, GMT Games)
Cold War (Lenny Glynn/John Prados, Victory Games)
Holy War: Afghanistan (Joseph Miranda, Decision Games).

Further Reading

A masterful embedding of the oil crises in the context of the Cold War is Painter, David S.: Oil and Geopolitics. The Crises of the 1970s and the Cold War, in: Historical Social Research 39, 4, p. 186—208, which you can find online here (free registration required).
A magisterial account of the history of oil as a strategic resource is Yergin, The Prize. The Epic Quest for Oil, Money, and Power, Simon & Schuster, New York City, NY 1991 (p. 588—613 on the Oil Crisis).
Ikenberry has analyzed the comparative responses to the oil price shock: Ikenberry, G. John: The Irony of State Strength. Comparative Responses to the Oil Shocks in the 1970s, in: International Organization 40, 1, 1986, p. 105—137.
Finally, for an examination if the Arab measures achieved their goal of altering Western policy, see Licklider, Roy: The Power of Oil. The Arab Oil Weapon and the Netherlands, the United Kingdom, Canada, Japan, and the United States, in: International Studies Quarterly 32, 2, 1988, p. 205—226.

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