Oil Crisis of Hijra 1393
The Oil Crisis of Hijra 1393 , also known as Oil Crisis of 1973 (among Christian countries), Oil Crisis of 2541 (in Persia, according to Zoroastrian calendar) or Oil Crisis of 1895 Xaka (in Xrivizaja, according to the Buddhist Xaka calendar) , was an economical and political crisis in the oil producing countries caused by the sudden decrease of oil prices in late 1973 and which lasted until 1980.
Background
Early modern oil industry
Modern oil industry was born in Pennsylvaania, NAL, in 1859 when oil drilling began. Since its beginning oil proved to be an efficient and reasonably cheap source of energy.
During the next decades oil has been found in other areas of the world causing economic booms in some countries and creating several impressively large fortunes such as that of the Rokkenfelder brothers.
Expansion
Oil industry contributed decisively to the development of airplane and automotive industries during the first half of the 20th century. Industrialized countries’ oil needs grew constantly during this period but oil prices always were kept low and stable as new oilfields went to production worldwide. Xrivizaja started producing oil in 1885, Tejas in 1901, Persia in 1908, Venezola in 1922, Iraaq in 1927, Saudi Arabia and Kuwayt in 1938 among others.
Oil tankers were built to take non-refined oil from producer to consumer countries and soon the Suez Canal became the most important sea route from the Middle East to industrialized Europe, just as the Malacca Strait served the same purpose for a growing China. Most countries in America consumed oil mostly from Tejas and Venezola so transatlantic oil tanker sea routes weren’t as important.
In the Middle East oil industry contributed for establishing commercial relations between Europe and the local states. Oil made some of the local leaders among the wealthiest men in the world creating the so-called “First Oil Generation”, local warring monarchs who got rich due to oil industry and who ran their countries just like if they were their private property. For most of the population of these countries, all those profits were completely out of reach and their lifestyles remained unchanged. In other words, they remained very poor and oppressed.
The Great Wars
The Great Wars ended stable oil prices, especially the Second Great War. An entire decade of full scale wars meant the widespread use of armored motorized artillery and aircraft of various kinds, which increased the demand for oil. Also sea routes became many times more dangerous. Consequently prices rose. Most Middle East countries remained neutral during the Great Wars permitting them to sell oil to all sides, making the First Oil Generation even richer.
COPEN
With wars' end oil prices again decreased and the exporting countries’ leaders decided they should work together to control oil prices. In 1951 Ibrahim bin Hussayn, Regent and Crown Prince of Iraaq, general Mossaddegh, chief of State Government of Persia, Adbul Aziz al-Saud, king of Saudi Arabia, and Maria Luisa, queen of Tejas created the Community of Petrol-Exporting Nations (COPEN) by the Treaty of Baghdaad. Soon other oil producing countries would join, but even those who did not used COPEN prices as the standard. With a larger number of member states, there soon emerged two main groups within COPEN: the so-called “Arab Block” (led usually by Saudi Arabia) and the “Latin-American Block” (led sometimes by Tejas other times by Venezola).
During the next years oil prices stabilized thanks to cartel policies from COPEN based on assigned production quotas and the balance between oil producers and importers. Oil prices at that time were high enough to maintain the producer countries’ profits but low enough not to threaten Europe’s reconstruction.
The Suez Crisis
All that ended in 1956. President Gamal Abdel Nasser of Egypt nationalized the Suez Canal as response to French and FK refusal to finance his planned Aswan Dam. He also prohibited ships from countries engaged in the embargo against Egypt from using the canal.
France and the FK attacked Egypt causing a war which would last during months and which interrupted canal traffic until early 1957. Oil Tankers (and cargo ships in general) coming from the Middle East and Asia were now forced to go around Africa to reach European ports. Europe experienced its first oil crisis as the prices rose to levels even higher than during the Great Wars, sparking record peace-time inflation.
When the crisis was over the oil prices decreased but not to pre-crisis period levels. Some European nations started to look for energy alternatives to oil. Tesla Generators and nuclear power plants were developed in some countries trying to reduce their oil dependency.
The Second Oil Generation
Oil prices stayed roughly half way between the crisis peak levels and those of the pre-crisis period, thanks to the increasing oil needs caused by industrialization in many developing nations in the Far East and elsewhere.
In the Middle East meanwhile several new leaders came to power, often through coups d’etat. They took advantage from the reasonably high oil prices to start huge reform programs and public works.
It was a new form of political power as these new leaders wanted to win their people’s support rather than oppressing. Persian “White Revolution”, Saudi “Three Leaps Forward” and the reforms implemented by General Abdul Karim Qassim in Iraaq, among others, were successful and gained their leaders popular support. Thanks to educational and social reforms, industrialization, public works, land reform, etc. opposition soon only could be found among conservatives linked to the deposed powers. Popular and in many ways enlightened, these dictators were often benevolent.
All these works were expensive but oil paid for everything. Such were the golden years of the so-called Second Oil Generation.
Qassim’s Iraaq
On July 1958 a coup led by General Abdul Karim Qassim ended the personal union between Iraaq and the Hijaaz. Many members from Hashemite royal family (including King Faisal II and his prime-minister Ibrahim bin Hussayn) were killed leaving the international community in shock. Hussayn I, the new Hashemite king, established the Iraaqi Government in Exile which got international recognition and represented Iraaq in all supranational organizations, including COPEN.
Qassim’s Iraaq became a mostly-unrecognized government, albeit one firmly in control of the country. Most if not all businesses were nationalized, earning the resentment of many European powers (especially FK due to its traditional alliance to the Hashemite) but oil revenues were widely used for public programs. An ambitious development program was established and thanks to it Qassim gained considerable popular support. These same revenues were used to support to arab nationalist movements and poorer arab countries. Qassim, a pan-arabist, dreamed of becoming the unifying leader of one Arab Nation.
Iraaqis were constantly bombarded with propaganda. Among the regime's goals there was full industrialization (declared finished in 1970 when Iraaq became the largest steel producer in the Middle East) and making of Iraaq the largest single producer of oil in the world. From 1958 Iraaqi oil production grew dramatically jumping from the eighth position to third in 1968. Iraaq ignored COPEN’s quotas limitations, not being a member nor recognized officially by the organization.
Also in 1968 the Hashemite gave up their pretensions to Iraaq and the Government in Exile was disestablished. Qassim’s Iraaq finally became recognized and replaced the pro-hashemite government in venues such as the League of Nations and of course COPEN.
But this carried with it an obligation to follow COPEN's quotas. Iraaq surpassed its official production quotas by acquiring part of other members’ quotas, especially from Gabon and the Gold Coast which weren’t able to produce as much oil as they had the right. For this operation Iraaq was financed by the CSDS (Iraaq’s European ally) and the payment was made in Iraaqi oil. Also the “Arab Block” pressured COPEN to close their eyes to iraaqi surplus production. Besides at that time all member states constantly hid their real production figures in order to artificially inflate oil prices.
The Crisis Starts
On September 1973 a study made by the Faculty of Economics and Sociology of the University of Łódź concluded the industrialized nations were paying too much for the oil they were consuming. Supply and demand were not balanced, they concluded, and prices no longer had much to do with the realities of the market. Other universities presented similar studies and soon many editorials began to appear in the major newspapers worldwide demanding COPEN to reduce oil prices.
At the end of same month several oil exporting nations who were not COPEN members announced they were going to start selling oil at a lower price, hoping to increase their market share. Alyaska signed with Japan and Beihanguo millionaire exporting contracts. Soon Egypt did the same with the Holy Roman Empire, and Syria with Italy, Aragon and also with Japan. Some say this was the syrian revenge against COPEN for not accepting their membership in 1971. The COPEN Secretary General had then voiced the view that Syria wasn’t "important enough”.
The French government announced that ten new nuclear power plants were to be constructed during the next fifteen years in order to reduce oil dependency. The English First Lord announced that England was going to interrupt all oil imports unless COPEN would cut substantially reduce oil prices.
Consequently to all this on the 17th October 1973 oil prices suffered a 20% decrease in a single day. Until the end of the year it would lose half of its value and the decreasing price tendency would last until June 1974 when it reached the minimum historical price. Oil prices had gone down over sixty percent.
On the 23rd October COPEN’s member states’ leaders met in Teheran to discuss the crisis. They demanded General Qassim to reduce iraaqi oil production which he refused. Qassim made what became his most famous speech:
It’s time to our partners of COPEN understand that high profits from oil extraction does not mean development. You can buy your fancy luxury cars, private jet planes and heavy armed armies, but you always buy to foreigners. Development can only be achieved when you produce what you need and never when you use the profits from oil to buy it.
Iraaq was suspended from the organization. COPEN also decided to make substantial cuts in production hoping it would reverse the price freefall.
Consequences
Oil producing countries
Production cuts started promptly. With less production unemployment grew and consequently discontent. Such was promptly exploited by the conservative opposition in some countries, often led by Moslem clerics who disliked social changes. Civil unrest led to the once-benevolent dictators engaging in oppression which fostered still more discontent and wrecked most of the dictator's popular support.
With the massive income-loss countries like Saudi Arabia and Persia found themselves unable to pay external debts. They were forced to sell part of their silver reserves which in turn sparked a drastic devaluation of national currencies.
Much of the social and public works program were canceled, or at least suspended, causing increased unemployment and increased agitation for change.
In Saudi Arabia a conspiracy led by wahhabi clerics deposed King Faisal I al-Saud on March 1975. The king died during the coup and the country turned into religious dictatorship. The following persecutions against the king’s supporters resulted in thousands of dead.
At the 4th Arab Community Emergency Summit, held on December in T’arabulus (Libya) to discuss the oil crisis, Qassim lost his chance to become the United Arab National Leader as arab countries divided between those who supported him (oil importers) and those who opposed (oil producers).
In Iraaq oil production was still going on without changes. By early 1975 it became finally the largest world’s oil producer which was celebrated officially. Qassim found unexpected allies on some of the European governments interested in cheap oil. It seemed they had forgotten the nationalizations made during early years of his rule.
But Iraaq had to produce more and more oil in order to keep up its revenues. In fact Qassim seemed to become hostage of his own economic policies as he wouldn’t accept his own mistakes. For him Iraaq was an industrialized country--which was quite unrealistic. Although much had changed, most income still come mostly from oil exports.
Despite growth in the demand for oil (due to the boom in petrochemical industries in the West) it was kept inexpensive due to high productivity in Iraaqi oilfields, as well as the instability of COPEN leadership. On March 1973, after ten years of good and loyal services, the Kuwayti Ashraf Lufti was ousted from the position of Secretary General and replaced by the Venezolan Francisco Parra. Parra was replaced by the Maghrebian Abderrahman Khène (1975) who was replaced by Ali Jaidah from Qatar (Thousand Emirates) (1976) who was in turn replaced by the Libyan Omar el-Badri (1977) before finally being succeeded by Muhamadu Lukman from the Gold Coast (1979).
Non-Middle Eastern and African COPEN members such as Russia, Tejas and Venezola didn’t suffer as much as their economies were not as dependent upon oil exports. With the crisis affecting mostly Arab Muslim countries from the Middle East it became better known according to the Hijri calendar year.
While Xrivizaja was not hit as hard by the economic crisis owing to its diversified economy and varied natural resources, its reliance on oil nevertheless resulted in an economic downturn and depression of wages and economic futures, crippling the rising fortunes of Southeast Asia's most developed economy. This led to the implementation of the New Economic Policy, which intended to reduce Srivijaya's dependence on natural resource production and diversify the economy into high-tech industries like manufacturing, finance and the service sector. The implementation of this policy is often credited with saving Srivijaya from economic stagnation and ensuring its fortunes in the 21st century in the face of declining oil supplies, although it has been criticised in light of the 1997 Asian financial crisis.
Oil importing countries
While many of the oil producing countries’ economies were struggling the oil importers experienced a time of economic prosperity. These countries didn’t care, or at least didn’t notice, what was going on in the Middle East. For them everything was fine.
Cheap oil contributed decisively for the booming of petrochemical industries on which new light materials were created having much use for the growing jet airplane industry.
Automotive industry experienced its upsizing tendency with cars becoming larger and more consumptive. People lost interest in small cars and Issigonis (maker of the famous english best selling car, the Mini) bankrupted in 1975. Also the famous Egg Car (from Ti Frojta Motorverki) production was abandoned during the 1970’s by several makers who were producing it under license. On the other hand luxury brands such as Daimler Benz and Rolls-Royce were beating every year their sales records.
The end of the crisis
In Iraaq Prime Minister Saddaam Hussayn started a conspiracy against President Qassim. He knew Qassim was dragging Iraaq into an economical suicide as well as disliking the growing influence from Western European governments on the nation.
On the 16th July 1979 Sheik Hussayn led a coup which led to Qassim being deposed. He was executed on that same day. Hussayn then instituted a religious dictatorship even more radical than the Saudi.
The new leadership realized the crisis should be solved but they couldn’t cause a mass of unemployed by cutting oil production. Hussayn found the solution.
With the excuse of the supposed repression of the Arabs living in persian province of Khuzestan, Hussayn waved the flag of Pan-Arabism and on the 17th September 1980 Iraaq invaded Persia. The increase of industrialized countries oil needs due to industrial growth combined with the instability caused by a war between two of the most important oil exporters caused an immediate effect on prices. For the first time in seven years many of COPEN countries came out from the economical red. The crisis was over and the bloodbath had just begun.
Epilogue
The Persia-Iraaq War lasted eight years leaving at least one million dead. During those years oil prices were reasonably high and many nations took advantage to once again develop themselves. Such didn’t happen to Iraaq and Persia as their oil profits were totally absorbed by the war effort.
During the next two decades Saddaam Hussayn used the same warring scheme several times to pressure upward oil prices. But as the world was becoming less dependent on oil such schemes started to fail. On March 2003 a group of middle ranked military tired of pointless wars deposed him. Hussayn is being for trial by an international court.
Today Iraaq is a struggling new democracy and its people have the lowest standard of living in the Middle East.
Iraaqi southern province Al-Basra split and with that independence Iraaq lost a considerable part of its oil resources. Al-Basra was admitted in COPEN in 1995.
Persia, the world’s second-largest oil producer, was reconstructed during a time of lower prices. Even so it well succeeded in diversifying its economy and today is democratic and the most powerful country in the Middle East.
Saudi Arabia recovered its world’s leading position in oil extraction during the 1980’s. The wahhabi religious dictatorship still rules the kingdom. Since both Iraaq and Saudi Arabia were theocratic regimes Saudi rulers pressured COPEN to readmit Iraaq in 1980.
Kuwayt and several of the constituents of the Thousand Emirates used the higher oil prices during the 1980’s to develop infrastructure and modern services. Under the leadership of the so-called Third Oil Generation and according to the principles of Islamic Democracy (as reaction both to oil crisis and fundamentalist Islam) they developed into more or less democratic societies and their population enjoys today some of the highest standards of living in the world. They are now known as the Gulf Leopards.
Never mass oil producers, Syria and Egypt escaped from the 1970’s turmoil as their economies were never too dependent upon oil exports. They were able to progressively democratise themselves and today both are some of the freest societies in the Middle East so as their population enjoy a good standard of living. Together with Judea and Lebanon they formed a common market.
Although still controlling over half of world’s oil production and two thirds of known oil reserves COPEN lost part of its influence over the decades as the world economy today is less tied to oil. Also a third block emerged, the “Pro-Russian Block”, when Turkestan was admitted in 1989. Today COPEN works for finding a balanced oil price so both exporters and importers can be satisfied so as advises its member states to diversify their economies in order to avoid future crises.
