Mariano Caucino

Lessons from the 1973 Oil Shock

34a Gas Shortage Sign in Connecticut During Energy Crisis 892x600
34a Gas Shortage Sign in Connecticut During Energy Crisis 892x600

October 6, 1973. In the State of Israel and in the rest of the world, the Jewish people observe Yom Kippur. The opportunity provides the chance for a surprise attack by Arab countries -led by Egypt- willing to take revenge for the humiliation suffered in the Six-Day War (1967). In which the Israeli army had launched a lightning attack, destroying Egyptian, Syrian and Jordan joint offensive capacity in less than a week. Putting an end to Colonel Gamal Abdel Nasser´s pan-Arabist project.

But this time -having ignored some intelligence reports- Golda Meir’s cabinet is surprised by the enemy attack. Which jeopardized the integrity of the Hebrew state just a quarter of a century after its founding.

Naturally, the conflict´s development exceeds the possibilities of being described in these brief lines. But essentially, the Yom Kippur War would have enormous historical consequences in the midst of the Cold War. To the point of risking the delicate understanding around the Detente that the United States and the Soviet Union had reached in the early seventies. During the hyper-realist era of Nixon-Kissinger Administration and Brezhnev´s Politburo.

The truth is that after an important war effort, the until then apparently invincible Israel army managed to turn the contest around. Largely thanks to US support. And although the Jewish state did not obtain an overwhelming victory like that of 1967, it managed to defeat the arabs again.

But the war would bring dramatic consequences for the entire world. Because OPEC immediately ordered an oil embargo against the nations that had helped Israel. A decision that skyrocketed the price of a barrel of crude oil. To the point of quadrupling it in a few weeks. Which led to a major energy crisis in developed economies. Those who would be forced to rationing policies, speed restrictions on highways, long lines to fill up with fuel and the emergence of a hitherto unknown concept, “stagflation.”


A horrible reality entailed in the combination of recession and rising inflation rates. Which led to the conclusion of three decades of economic expansion that followed the end of World War II. Because the drastic change in relative prices implied a collapse of the North American and British GDP and a contraction of the until then ascendant Japanese economy. While leading to a distressing double-digit inflation rate in most G-6 countries. Setting up, in essence, a time of “malaise” that would consume successively Gerald Ford and Jimmy Carter, depriving them both of the possibility of re-election.

It was in those circumstances that, during the 1980 campaign, Ronald Reagan masterfully explained that the recession took place when your neighbor loses his job. While depression occurred when you lose yours. And while recovery would take place when Carter lost his.

But at the same time, the 1973 Oil “Shock” -which would be followed by that of 1979 as a consequence of the Iranian crisis- would cause a main geopolitical alteration. Since the producing countries would see their coffers flooded by “petrodollars” that would then be recycled in the global financial system through first world banks. With the corollary that this would end up having an exponential increase in the debt of emerging countries.

A reality that would have decisive consequences -for instance- in Latin American nations. Especially due to the accumulation of gigantic debt stocks in the second half of the 70s. Until reaching the debt crisis that followed the default decreed by Mexico in 1982, which in turn would give way to the “lost decade” that followed it.

The 1973 oil “shock” offers a fundamental lesson for understanding the extent to which we live in a deeply interrelated world. In which it is essential to try to understand the world´s great currents. Those dominated, as always, by the forces of historical evolution. Perhaps the true master of the course of events.

Mariano A. Caucino is a foreign policy analyst. Former Argentine Ambassador to the State of Israel and Costa Rica. Member of the InterAmerican Institute for Democracy (Miami, FL).

About the Author
Mariano Caucino was Argentine ambassador to Israel (2018-2019) and to Costa Rica (2016-2017).