In 1973 the Arab oil-exporting countries stunned the world by announcing that they were cutting oil production and placing an oil embargo on the United States and the Netherlands. Now, 35 years later, fears about the security of oil supplies are provoking concern that Iran or a similarly hostile country might have recourse to some form of the oil weapon again. However, upon examination of the historical precedent—the use of the oil weapon in 1973 and 1974—it becomes clear that the oil weapon is a blunt instrument that cannot be applied in a focused manner for any sustained period.
The Oil Weapon of 1973-1974
On October 16, 1973, an OPEC committee consisting of the oil ministers of the six Gulf member countries (United Arab Emirates, Iran, Iraq, Kuwait, Qatar, and Saudi Arabia) announced that they would unilaterally increase the posted price of Arabian Light, the marker crude, from US$3.011 per barrel to US$5.119—an increase of 70 percent. This price decision was the first phase of what became known in the developed world as the “oil price shock.”

The next day, the five Arab members of the OPEC committee were joined in Kuwait by the oil ministers of Algeria, Bahrain, Egypt, Libya, and Syria. Although the meeting included all the members of the Organization of Arab Petroleum Exporting Countries (OAPEC), it was not convened as an OAPEC Council of Ministers, but rather as a Conference of Arab Oil Ministers. Indeed, the purpose of the meeting was political rather than economic, and fell outside the OAPEC remit. The ministers were trying to agree on how to use the oil weapon to persuade the United States to reconsider its “blind and unlimited support for Israel” and to force the evacuation of occupied territories.

The October, Yom Kippur, or Ramadan War (which, like the English Channel, has different names depending on which side of the divide one stands) had begun on October 6, 1973. But Arab frustrations with the Israeli refusal to evacuate occupied territories and implement a number of UN resolutions had been deepening even before the war. These frustrations had been aggravated on a number of occasions by perceptions that the United States was perpetually standing behind Israel in total indifference to the Arab plight. The idea that an oil weapon might be used to shake US indifference was introduced in 1971 and 1972, and King Faisal of Saudi Arabia went so far as to issue a warning in a meeting held with top executives of the Aramco parent companies (Exxon, Socal, Texaco, and Mobil) in Geneva on May 23, 1973. The message was that the United States might “lose everything” unless it changed its policy toward the Arab-Israeli conflict. The possibility of a cutback in oil production was mentioned again in subsequent press interviews.

The meeting of the ten Arab oil ministers in Kuwait on October 17 produced, with remarkable speed, a resolution detailing the steps to be taken. Nine countries signed the resolution. Iraq was the only one to decline, as it strongly preferred the nationalization of oil concessions to the use of the oil weapon.

At this meeting, it was determined that the oil weapon would be deployed as follows: the nine signatory countries would reduce their oil production forthwith by at least 5 percent from the actual September 1973 levels, “with a similar reduction to be applied each successive month, computed on the basis of the previous month’s production.” Care would also be taken to ensure that friendly states would not be affected by the reduction. The production cuts would continue until Israel evacuated the occupied territories and the legitimate rights of the Palestinian people were restored.

The decision on the production cut was then modified on November 4. Production cuts were raised to 25 percent below the September level, to be implemented in November. This was to be followed by a further 5 percent reduction in December. The different categories of oil-consuming states were finally set as follows. First, most favored countries would receive their full requirement of oil. Second, preferred countries would be allowed to import “the equivalent of their average imports of Arab oil during the first nine months of 1973 or during the month of September 1973, whichever was greater.” Third, neutral countries’ imports would be reduced by the same rate as the general cutback and by a proportion of the additional amounts supplied to the most favored and preferred countries. Fourth, embargoed countries would receive no supply of Arab oil. These countries included the United States, the Netherlands, Portugal, South Africa, and Rhodesia.

It is immediately clear that such a scheme would be difficult to implement. To cut oil production by a certain percentage is one thing; to reallocate the remaining supplies to importing countries according to four different groupings and a number of criteria is something else altogether. Furthermore, the across-the-board production cuts would cause world oil prices to rise. Indeed this is exactly what happened. The economies of both friends and foes among oil-importing countries were affected. Indeed, the paradox was that friendly oil-importing developing countries were likely to suffer more adverse economic impacts than did the rich industrialized states targeted as foes. In this respect, the oil weapon was—and remains—a very blunt instrument.

Diplomatic pressures and the realization of exaggerated expectations about US willingness and ability to act effectively toward a resolution of the 25-year-old Arab-Israeli conflict began to weaken Arab resolve as early as December 1973. Already at a meeting held in Kuwait on November 19, 1973, the Arab oil ministers had begun to show that they were open to flexibility. They decided not to impose the 5 percent supply reduction scheduled for December on European Economic Community countries (other than the Netherlands) in appreciation of some friendly statements made by the Europeans. A week later Japan and the Philippines, both deemed to be friendly, were exempted.

The notion that the oil weapon was an “instrument of flexible persuasion” turned out to be little more than public relations spin. On December 24 and 25, the 25 percent production cutback rate from the September levels was reduced to 15 percent, and the 5 percent reduction scheduled for January 1974 was abandoned. Meanwhile, Egyptian President Anwar Sadat, who had placed great hopes in his “friend Henry,” as he used to refer to US Secretary of State Henry Kissinger, was persuaded that the lifting of the embargo on the United States would enable US diplomacy to begin working toward the desired goal of the evacuation of occupied territories. President Sadat then made great efforts to convince King Faisal of Saudi Arabia, the leader of the oil weapon initiative, of the merits of lifting the embargo.

Sadat eventually succeeded. At a meeting in Vienna on March 18, 1974, the Arab oil ministers decided to lift the embargo on the United States. For all intents and purposes, the oil weapon was abandoned when the embargo on the United States was abandoned. The use of the oil weapon had lasted for almost five months. Yet because a number of successive relaxations increased oil supplies to the world economy, it could reasonably be said that the effective use of the weapon did not last for more than three months.
Lessons for Today
This analysis of the only serious instance of the use of an oil weapon by oil-exporting countries reveals the difficulties that a developing state would likely face if it attempted to wield this instrument in the context of a political dispute with the United States or another OECD country.

The oil weapon is a blunt instrument. The international oil trade involves a large number of exporting countries, and there are many more today than there were in 1973. An embargo imposed on one or a few importers will not necessarily deprive these states of access to oil supplies, so long as other sources remain available. Indeed, the embargo would need to be associated with a very significant cut in oil production to ensure that the embargoed country would not be able to satisfy its demand for oil.

Despite fears about Iran or Venezuela, a significant cut in world oil supplies cannot be achieved by a single oil-exporting country. Saudi Arabia is the only producer that has the necessary weight to do so, but today it is the least likely country to resort to using the oil weapon.

A production cut, if implemented in a tight market, would cause prices to rise and adversely affect all importing countries. Friendly states that are so affected would plead with the countries wielding the oil weapon to relax the measures or grant them exceptional treatment. And if these requests were to be even partially satisfied, the whole system would begin to unravel, as occurred in 1973 and 1974.

The embargoed countries, if endowed with military power as well as economic and political clout, would begin to threaten those that were imposing the sanctions. In 1973 and 1974, Kissinger and Schlesinger hinted at the possible use of military intervention on a number of occasions. This did not happen, perhaps because the Soviet Union was seen as a constraint on the United States’ ability to use military force, or perhaps because Kissinger was too wise to risk offensive action in an explosive and complex Middle East. But there is no countervailing force like the Soviet Union today, and the global balance of power that has so far marked the 21st century is radically different from that which existed in the early 1970s.

There is no doubt that the use of the oil weapon in October 1973 caused a panic among oil-importing states. These countries quickly became conscious of their vulnerability as they recognized their dependency on non-substitutable oil for critical uses (both in the transport sector and in other sectors, in which fuel substitution was technically possible but could not be achieved in the short-term). There was also a sense of outrage among OECD states. How could a group of weak, developing countries challenge the world’s great powers with such initial success? The perception was that the economic balance of power had shifted, thanks to the monopoly was enjoyed by the OPEC countries.

But the way in which the use of the oil weapon was gradually relaxed after its early escalation in November 1973 tells a different story. The oil-exporting countries were, in fact, quite weak. Having failed to achieve their political objectives, they abandoned the US embargo. After 35 years, Israel is still occupying land seized in 1967, and the Arab-Israeli conflict is still plaguing the Middle East.

As developing countries, potential aggressors are conscious that they are both dependent and vulnerable. They rely on the outside world for vital supplies, from food to pharmaceutical products, and for both consumer and capital goods. Their recent wealth in the form of foreign exchange reserves leaves them dependent on the international financial system. There is, to say the least, mutual dependence between the oil exporters and the rich industrialized countries. Although the latter’s dependence is based on a single good—oil—the former are dependent on a variety of goods and services imported from abroad.

Subsequent historical developments further revealed that the balance of power at that time favored the West. Indeed, the direction of oil weapon use was actually reversed, as the United Nations and United States used oil sanctions against Libya, Iraq, and Iran. Moreover, unlike the OPEC’s effort of 1973, these embargoes were not short stints of three to six months, but rather lasted for a number of years. The experience of 1973—the first and last use of the oil weapon by oil exporting countries—clearly shows that it is not easy (or perhaps possible at all) to achieve political objectives with this instrument.

The deterrent today against the use of the oil weapon by one or more Gulf countries is the significant US military presence in the region. The United States has bases in Kuwait, Qatar, Bahrain, Iraq, and Kyrgyzstan and a sizeable US naval force sails in the waters of the Gulf. This was not the case, at least to the same extent, in 1973, as the Cold War restricted the military activities of the two existing superpowers.

Iran might initially retaliate if it were attacked by the United States, Israel, or some coalition thereof. It could reduce the volume of its oil exports. The loss of one million barrels a day would initially push prices up. Yet a shortfall of one million barrels a day could be easily compensated for by a release of oil from strategic stocks held in the United States, Europe, and Japan, and by the use of surge capacity in producing countries. In addition, it is difficult to identify oil-exporting countries that might join Iran in wielding the oil weapon.

Some lurid scenarios involving Iranian attacks against oil installations in other Gulf countries or attempts to close the Straits of Hormuz have engendered a certain amount of fear. But they lack credibility, as they ignore the existence of a powerful US deterrent in the region.

President Chavez of Venezuela is just as unlikely to use the oil weapon. Despite a series of threats to restrict oil exports to the United States, Chavez would most likely never take such a risk unless there is a US-backed attempt to overthrow his regime, or if Venezuela is subjected to a US military attack—which is highly improbable. Since the volume of Venezuelan oil exports to the United States is large (some 1.5 million barrels per day), any sustained interruption could cause significant disturbances to the world oil market and the domestic Venezuelan economy.

Markets react very nervously to more benign events than this. The release of such a volume from the US strategic stockpile would lead politicians or the media to question the wisdom of depleting oil reserves at that rate over a long period of time. The International Atomic Energy Agency would be called into action, but the performance of this institution in the crises of 1979 and 1990 with the use of its “safety net” did not inspire much optimism.

Even if oil prices did rise significantly, Venezuela’s oil revenues would inevitably suffer, simply because the volume of Venezuelan oil exports to the United States is a large proportion of the country’s total exports. A 75 percent reduction in exports calls for an impossible four-fold increase in prices to keep revenues constant. In such a situation, Venezuela would certainly find the revenue loss simply unsustainable.

This is not to say that the use of the oil weapon cannot or will not be launched. The implication of this analysis is simply that if launched, it could not be sustained. It is clear that the attempted use of the oil weapon by Iran or Venezuela, or any extremist regime in an oil-exporting country, bears a relationship to aggressive policies pursued by the United States. Thus, a radical change in Western policies toward the Middle East and developing countries in general may improve the security situation in the long run.
The Energy Security Issue
Worries about the potential use of the oil weapon are part of a multifarious concern about the security of oil supplies. This supply could be similarly affected by technical accidents, storms, terrorist attacks on oil facilities, civil unrest in oil-producing provinces of exporting countries, failures to invest at an appropriate rate in exploration, development, or production, and the premature arrival of a production peak. Given all these potentialities, the oil weapon should not be the only, or even the primary, concern—for, as argued above, even if it is launched, it cannot be sustained.

The United States, the European Union, and Japan all want to reduce dependence on oil for both security and environmental reasons. The means that have been proposed are twofold: fuel substitution in favor of nuclear, renewable energy, gas, or coal, and more efficient energy use. Some progress has been achieved on both fronts. But the reductions required to mitigate the world’s reliance on oil from Iran, Venezuela, and other unstable states are beyond what can be obtained in the short or medium- term. A reduction of dependence on oil imports in the United States, Europe, and Japan is unattainable for the simple reason that a country importing 12 million barrels per day (the United States) would not be less vulnerable to a supply problem if it managed to reduce its import volume to 9 or 10 million barrels per day. Only a technical revolution in the fueling of automobile engines could kill the thirst for oil in these countries, and this may not happen for at least 20 years.

In any case, there is a dependence paradox: reducing oil import volume does not reduce vulnerability to an oil supply shock, so long as these volumes remain somewhat significant.
A Strategic Stockpile of Oil
The implications of this analysis may provide some comfort on one very important point: the likelihood of the oil weapon being used outside a war launched against Iran by the United States is very small. And even in that case, the implementation of the oil weapon cannot be sustained. But the overall security of oil supplies, as mentioned above, is threatened by a host of factors and potential events.

Although a wide range of policies must be pursued for long-term energy security considerations, the policy that makes the most sense for the short and medium run is the development of a strategic oil stockpile. The reason is simply that a supply shortfall, caused by any number of potential developments, could then be easily compensated for by releasing oil from this stockpile. This has been achieved to a certain extent in Japan. The volume currently stocked by the United States is probably close to the optimum amount, though this judgment may differ among experts with different degrees of risk aversion. However, strategic stockpiling must be associated with the design and publication of clear procedures for its use in different types of emergencies. Uncertainty in this context can deprive the strategic stockpile of its utility.