The phrase “oil weapon” almost universally calls to mind the October oil embargo of 1973, although various countries have used oil as a political weapon in recent history. The US has historically imposed a greater number of oil embargoes than any other nation, including oil embargoes on Japan before World War II; on the Soviet Union in the 1960s; and on South Africa, Burma, Serbia, Haiti, Libya, Iraq, Iran, and Sudan in the last 2 decades.
A number of Arab oil-producing states, mostly US allies, used oil as a political weapon against Western countries in 1956, 1967, and 1973. Their objective, especially in 1967 and 1973, was to force countries that supported Israel to change their foreign policies and put pressure on Israel to withdraw from territories it occupied during the 1967 war.
Oil embargoes are not confined to the past. Calls for oil embargoes have been on the rise in recent years. Iraq and Iran called on Islamic states to halt oil exports to pressure Western countries to force Israel to pull out of Palestinian areas after the violent incursion into the Jenin refugee camp in March 2002.1 Even more recently, some Muslim leaders have called for the use of oil as a weapon for the same purpose.2 Despite the official stand of current Arab governments that they would not use oil as a political weapon, the anti-American sentiment in the Middle East today supports the imposition of an oil embargo on the US-and even a halt in oil production. Any radical change in the Arab world may change the current official stand and pull the trigger of the oil weapon.
Most experts believe that economic sanctions do not work and that the oil embargoes of 1956, 1967, and 1973 failed to achieve their objectives. Why did the oil embargoes fail to achieve their objectives? Why did some Arab governments, despite their belief that the use of the oil weapon would not coerce the targeted countries to yield to their demand, pull the trigger anyway? Will some oil-producing countries use the oil weapon in the future? When and why?
History of embargoes
Answers to these questions must proceed from the histories of the three embargoes generally believed to have failed.
The 1956 embargo
Egypt nationalized the Suez Canal in July 1956. England, France, and Israel retaliated by launching a war against Egypt. In reaction, Saudi Arabia, which signed a security agreement with Egypt a year earlier, imposed an embargo on oil exports to Britain and France, but it did not cut production. The only supply interruption came from Iraq, when a Syrian nationalist group blew up one of the pumping stations of the Iraqi Petroleum Co. pipeline system in Syria, which links Iraqi oil fields to the Mediterranean.
Experts believe that the embargo was symbolic and that its economic impact was minimal, which explains why it failed to achieve its political objectives. The war closed the Suez Canal from November 1956 to March 1957. The explosion in the pump station closed the IPC pipeline for 9 months. Both incidents reduced oil output by 2 million b/d, which was less than the world excess production capacity at that time. The US increased oil shipments to Europe, and the international oil companies redirected shipments. As a result, oil prices increased by only 25¢/bbl.
The 1967 embargo
Several Arab states imposed an oil embargo on the US, Britain, and West Germany after the spread of rumors that US and British planes provided air cover for Israeli planes when they bombed Egypt’s military airports at the beginning of the 1967 war. The declared objective of the embargo was to deter Western nations from lending military support to Israel in its war with the Arab states and probably to punish them. The embargo started on June 4, 1967, and officially ended on Aug. 29, 1967.
Saudi Arabia and Kuwait made several attempts to put an official end to the embargo throughout the summer of 1967. They could find no evidence that US and British planes had participated in the attack. They argued that if they continued the embargo, they would lose the oil revenues that were badly needed to rebuild their economies and armies. They believed that the removal of the embargo would encourage Western countries to act as a counterweight to Communist influence in the area. They also feared British military intervention in various Arab countries, especially Kuwait.
The embargo failed to achieve its objectives. Western countries continued to support Israel. The embargo did not tip the military balance or restore Arab honor after the defeat. Finally, the targeted countries did not suffer. They continued to receive Arab oil despite the embargo. The closure of Suez Canal, not the embargo, increased oil prices slightly.
Several factors contributed to the failure of the embargo. Participating countries did not cut production, did not enforce the embargo, and did not extend the embargo long enough to make the targeted countries feel its pressure.3
Official statements indicate that Saudi Arabia and Kuwait were aware of the limitation of the oil weapon, but they used it anyway. Some experts have suggested that the lack of a production cut, the lack of enforcement, the speed with which these countries called to end the embargo, and the reluctance of some Arab states to impose the embargo indicate that this embargo was intended mainly for its domestic propaganda value. A comprehensive study by Daoudi and Dajani4 about the 1967 embargo, supported by others, has concluded that a careful analysis of the situation identifies other important, though implicit, purposes. Arab oil-producing governments used the embargo to defuse domestic political problems, contain civic disorder, absorb public anger, show solidarity and devotion to Arab causes, deprive extremists of an excuse to sabotage oil installations, and relieve the pressure to nationalize the foreign oil companies that were operating in Arab countries.
The 1973 embargo
The most important outcome of the 1967 embargo was the establishment of the Organization of Arab Petroleum Exporting Countries (OAPEC) along the lines of the Organization of Petroleum Exporting Countries (OPEC). The failure to coordinate the embargo of 1967 and the continuing belief that Arab oil could be used to support Arab political causes led the Arab oil-producing countries to establish OAPEC in 1968. Not all OPEC members were Arab, and not all of the Arab oil-producing countries were OPEC members. In addition, the Arab members of OPEC were not able to use OPEC to stage the embargo. OPEC, as an economic organization, has no political objectives. OAPEC, as a political organization, became the launching pad for the infamous 1973 oil embargo. The October embargo of 1973 thus was not an OPEC embargo. It also was not an Arab embargo because some Arab producers, including Iraq and Oman, did not participate. And it was not an OAPEC embargo (see accompanying story). This author prefers the use of dates to identify this embargo and others.
OAPEC emphasizes today that it is not a political organization and that it has nothing to do with production and pricing decisions. Its main objective is technical cooperation among Arab members. Its history since 1974 confirms this claim, but such was not the case in 1973.
On Oct. 19, 1973, several Arab countries imposed an embargo on the US and the Netherlands for their explicit support of Israel in the 1973 war. They used the embargo and production cuts that started 2 days earlier to pressure the US to adopt an even-handed policy toward the Arab-Israeli conflict. They hoped to persuade the international community to apply United Nations Resolution 242 to force Israel to withdraw to the 1967 borders. Some legal scholars have argued that the embargo was an appeal to the rule of law in international relations at a time when international organizations failed to implement applicable legal principles to the Middle East conflict, especially UN Resolution 242.5
In its statement announcing the reduction in production, the Council of Arab Oil Ministers declared in Kuwait City that production cuts would continue “until the Israeli forces are completely evacuated from all the Arab territories occupied in the June 1967 war and the legitimate rights of the Palestinian people are restored.”6 7 8
Four important outcomes distinguish the 1973 embargo from the previous two oil embargoes. First, oil prices quadrupled after the embargo, while they increased only slightly after the embargoes of 1956 and 1967. Second, oil prices reverted to their preembargo levels after the 1956 and 1967 oil embargoes but did not decline after the end of the 1973 embargo. Third, the quadrupling of oil prices was associated with a decline in economic growth, recession, inflation, and unemployment. Fourth, the oil-producing countries enjoyed an unprecedented transfer of wealth, which changed their economic, political, and social circumstances.
Although the embargo led to a mere 5% decrease in world oil supply and effectively lasted only 2 months, although it officially ended in March 1974, crude oil prices increased fourfold during that period. A 5% decrease in the world oil supply does not justify a fourfold increase in oil prices. Theory predicts that oil prices will return to their original levels at the end of an embargo. After the 1973 embargo, oil prices remained at their postembargo level.
Several factors, including the embargo, led to this persistent fourfold increase. These factors play an important role in the evaluation of the success of the embargo as a political weapon. They include production cuts, a sharp decline in available stocks, the timing of the embargo just before winter, lack of excess production capacity, concentration of excess capacity in a few OAPEC members, increased government control in the oil-producing countries, decreased US oil production, increased US dependence on oil imports from the Middle East, shortages of oil tankers and a decline in transportation excess capacity, US wellhead price controls, expansionary monetary policy, inflation, speculation, hoarding, and stockpiling.9 Several reports indicated at the time that the world would run out of oil in the 1990s, which fueled speculation, hoarding, and stockpiling. Most experts believe that price controls by the Nixon administration of president Richard M. Nixon contributed significantly to the shortages and gasoline lines in the US. Wellhead price control led to chaos in the US oil market. At first, it created confusion when it set different rules for “old oil,” “new oil,” and “imported oil.” Later, it decreased US production and increased US demand and imports, which consequently led to higher world oil prices.
Did embargoes fail?
Some experts believe that the 1973 embargo achieved at least some political and economic success. They argue that the embargo forced the US, Japan, and some European countries to change their policies toward the Arab-Israeli conflict. The embargo enabled Arab oil-producing countries to generate massive wealth, which empowered their governments, armies, and economies. However, most experts believe that, like the previous embargoes, the 1973 embargo failed to achieve its declared political objectives. In addition, economic gains were short-lived. The embargo backfired when the oil market collapsed in the mid-1980s. They cite these factors to prove that the embargo failed to achieve its declared political objectives and its implicit economic objectives:
• The US and European countries still support Israel, and Israel still occupies Arab lands.
• Western countries did not meet any of OAPEC’s demands. For OAPEC members to add a nation to the friendly-nations list, the nation was required to break diplomatic relations with Israel, sever all economic ties, provide military assistance to Arabs, and pressure the US to alter its policy. Nonetheless, OAPEC members gave Britain, France, and Spain this status, although they did not meet any of these demands. On Dec. 25, Japan was formally classified as a friendly nation without fulfilling any of the above conditions. Although Japan promised loans and technical assistance, especially technology, it did not keep its promises.10
• The prevailing US Middle East policy existed before the embargo and did not change. US shuttle diplomacy after the 1973 embargo was intended to contain the Soviet Union to prevent a possible superpower confrontation in the Middle East and to maintain unity among NATO members.
• Historical evidence suggests that claims that the 1973 embargo coerced Europe and Japan to behave in a way that led to an unfavorable diplomatic outcome for Israel are not correct. All the official statements by Britain, France, the Netherlands, Spain, and Japan that the public viewed as pro-Arab were actually restatements of old policies. In fact, the Arab states asked these countries to support something that they had already voted for: UN Resolution 242. Even if we accept Japan’s statement that it might “reconsider relations” with Israel, Licklider argues that Japan’s “policy has been longer on rhetoric than substance.”10
• Several experts attribute the improvement in relations between the oil-consuming and producing nations to the increase in wealth of the oil-producing nations. This increase in wealth increased the level of communication among various groups in all nations. Licklider argued: “Policy shifts seem to have been caused by the increase in wealth rather than concern for future oil supplies. Thus the apparent success of the oil weapon in changing the target’s foreign policies seems due to the quite unusual fact that the sanctions were enriching, suggesting that this is a precedent unlikely to be repeated.”10
• The economic goals cannot be ignored. OPEC members unilaterally increased posted prices by 70% a few days after the start of the October war and just a few days before the imposition of the embargo. Historical data demonstrate that the Arab oil-producing countries were able to generate massive revenues after the embargo. However, these economic gains were short-lived. By the mid-1980s, OPEC lost most of its market share, and OPEC surpluses became deficits. Conventional wisdom observes that economic sanctions reinforce the targets’ resistance and forfeit the initiator’s future economic leverage over the target.11 The US and its allies managed to mitigate the impact of the embargo and possible future embargoes by diverting oil imports from the Arab countries to other areas in the world and by increasing conservation, substitution, and domestic production. The result was a decrease in the demand for oil that consequently lowered revenues for the Arab oil-producing countries. Even before the decline in oil prices in the 1980s, OPEC real oil revenues (in 2000 dollars) declined from $440 billion in 1974 to $380 billion in 1976 and to $340 billion in 1978. OPEC production continued to decline after 1973, and only production in 1977 was slightly higher than production in 1973, according to data from the US Energy Information Administration. Fig. 1 demonstrates how OPEC members, mostly the Arab members, lost market share to non-OPEC nations. Even in the short run, wealth transfer helped the US when the petrodollars were recycled to the West.12 The US trade balance improved while the trade balances of Western Europe and Japan deteriorated, especially in 1975 when most of Europe’s positive trade balances turned negative. On the economic front, the embargo had caused more harm to Arab “friends” than the US.
Why embargoes failed
Economic sanctions generally fail when the goal is compliance. Target countries view compliance in most cases as humiliating and an infringement on their sovereignty. Coercing the target country to comply instigates nationalism immediately. Producing countries nonetheless impose oil embargoes for their symbolic value in domestic and international politics. This producer symbolism-consumer nationalism synthesis predicts that as the value of domestic and international symbolism increases, oil-producing countries are more inclined to impose an oil embargo.
The oil weapon transformed the substantive issue of the Arab-Israeli dispute to the independence and national integrity of the US, which evoked intense patriotism and internal unity. It also increased the political risk of capitulation to the Arabs. It became very costly for the Nixon administration to give the Arab oil-producing countries any concessions.
Whether by design or by coincidence, price controls and gasoline lines made all Americans feel the impact of the 1973 oil embargo and contributed to a sense of heightened nationalism throughout the US. Americans and their leadership were willing to endure considerable losses rather than to be coerced to fulfill the demands of Arab states.
Nationalism was evident not only in the common use of derogatory expressions against Arabs by many Americans but also in the many polls, editorials, letters to the editor, radio talk shows, and Hollywood movies that tarnished the Arab image. Polls show that Americans blamed the oil companies more than the Arab countries for the 1973 energy crisis. However, a careful analysis of the polls indicates that part of the blame was for cooperating with the Arab countries.13 Polls also indicate that the embargo backfired. American sympathy for Israel increased during the embargo and decreased after the embargo ended. The same thing happened during the embargo of 1967.
Even US Secretary of State Henry Kissinger described the oil embargo as “blackmail.”6 It was also evident in the calls for the US government to invade and control the oil fields in the Persian Gulf region. Recently declassified British documents indicate the US contemplated such an invasion.14
Historical evidence demonstrates that Saudi Arabia was reluctant to impose an oil embargo, yet it participated in all of the embargoes. Although Saudi Arabia was the last country to join the 1973 embargo, it continued rejection of the use of oil as a weapon. The Saudis shunned the use of oil as a weapon out of self-interest. But then the Saudis and their allies chose to impose an embargo anyway despite the enormous cost of imposing it. The producer symbolism-consumer nationalism synthesis postulates that the symbolic value of sanctions induces countries to impose them even though these countries know that they cannot coerce consuming nations into changing their foreign policies.
The domestic symbolism of the oil weapon has proven to be very valuable not only to OAPEC members but also to the US and its allies. The use of the oil weapon as a domestic symbol defused domestic political problems and civic disorder in the Arab oil-producing countries, absorbed public anger, and deprived extremists of an excuse to damage oil installations. In other words, the symbolic imposition of an embargo assured the continuation of the flow of oil through the arteries of the world economy.
Unique embargo
Several political, economic, natural, and technical factors made the 1973 embargo unique. This combination of factors made the impact of the embargo appear much larger than it actually was and contributed to the misperception that the oil weapon was successful.
The oil weapon did not coerce targeted nations into altering their policies toward Israel. The Arab-Israeli conflict continues, Palestinians still live in refugee camps in several countries, the US and its allies continue to supply Israel with weapons and advanced military equipment, and the Arab world still lacks the technology and expertise necessary for economic development.
The 1973 embargo instigated nationalism in the US. Americans were willing to endure hardship rather than capitulate to Arab demands. Americans viewed the oil embargo as a threat to their sovereignty, integrity, and way of life.
Arab oil-producing countries were aware of the limitation of the oil weapon. They imposed it principally for its domestic symbolism. They intended to influence domestic public opinion, disarm domestic political critics, and enhance their status in the Arab world. However, several researchers have argued that the Arab oil-producing countries had to do something substantive.
Several factors indicate that current Arab governments will not impose another oil embargo unless the symbolic value is great. Any future embargo will not achieve its political objectives. Economic damage in the consuming countries will depend on whether the embargo is associated with a production cut, the amount of the cut, and the duration of the cut. If production remains constant, transshipment will cover the shortages in any targeted country. If the embargo is accompanied by production cuts, crude oil prices will increase everywhere, and friends and foes will pay the same price.
The possibility of a complete halt of oil production is remote. Such a halt is costly for technical, economic, and political reasons. The dependence of the Arab countries on oil revenues is greater than the US dependence on oil imports. While the US and its allies can use the Strategic Petroleum Reserve and live without crude imports for at least 6 months, the oil-producing countries cannot remain without income for that long. The US and its allies may retaliate economically and militarily, a prospect that is even more likely now in the light of the Bush Doctrine of preemptive war. However, military intervention will not insure the security of oil supplies, as we have seen in Iraq in recent months.
Economic benefits from an oil embargo are short-lived. Higher oil prices in the 1970s resulted in an increase in non-OPEC production and a decrease in demand for oil in consuming countries. Conservation, substitution, and efficiency contributed to lower demand. Consequently, oil prices and oil revenues declined.
The producer symbolism-consumer nationalism synthesis predicts that the Arab producing states would impose another embargo if they believed that the value of its symbolism was very high but not to alter the target’s political behavior. The value of this symbolism increases if the leaders of some oil-producing states feel that they are in danger of losing their positions if they do not react to US and Israeli polices in the Middle East.
Given the current turmoil in the Middle East and the level of anger among the Arab people, the possibility of an oil embargo is still very high. The reasons that triggered the 1967 and 1973 oil embargoes still exist today. Regardless, one thing is clear: The threshold for current Arab governments to impose an oil embargo is higher than in 1973. Should further deterioration in the Middle East bring radical governments, the threshold for imposing an oil embargo would drastically decline. These radical governments could conceivably unleash the oil weapon and cut production to unprecedented levels, especially if the US and its allies imposed an embargo on imports from these countries.
Mabro states: “For this reason the correct strategy is to remind the USA and its allies that a potentially devastating weapon is available. No responsible government will want to use it; but a further deterioration of the situation in Palestine may bring to power in some countries irresponsible governments. They may be tempted to wield the weapon with devastating effects on the world and on themselves. The point is that the weapon is available. The mutual interest of both sides is to foster the conditions that will remove the temptation of using it. In plain words, this means a determined effort by the US to promote a just peace in Palestine.”15
Imposing an oil embargo for its symbolic value would benefit the US and its allies, especially in the long run, for it would reduce political instability, relieve public anger, prevent the destruction of the oil facilities in Arab countries, and keep oil flowing. The unwillingness of current Arab governments to impose even a symbolic oil embargo and the failure of the traditional oil weapon to restore the rights of Arabs and inflict damage on the US and its allies may have given birth to a truly effective oil weapon: attacks on pipelines and oil facilities in Iraq, Saudi Arabia, Sudan, and Yemen. The oil weapon has evolved and has become more powerful and more frequently utilized. Thus, it might be useful to ask: Should the US quietly encourage future symbolic Arab oil embargoes to mitigate the current attacks on oil facilities in the Persian Gulf and thus insure the flow of oil into the world market? ✦
Acknowledgment
This article summarizes the author’s research that has been published recently in Bridges and the Journal of Energy and Development.
References
1. Associated Press, March, 2002. Iraq carried out its threat and stopped its production throughout the month of April 2002.
2. “Muslims mulling oil as a weapon,” Dawn, Feb. 27, 2003.
3. Brady, T., “Oil Stoppage Perilous,” New York Times, June 13, 1967.
4. Daoudi, M. S., Dajani, M. S., “The 1967 Oil Embargo Revisited,” Journal of Palestine Studies, Vol. 13, No. 2, 1984, pp. 65-90.
5. Shihata, I. F., “Destination Embargo of Arab Oil: Its Legality Under International Law,” The American Journal of International Law, Vol. 68, No. 4, 1974, pp. 591-627.
6. Itayim, F., “Arab Oil-The Political Dimension,” Journal of Palestine Studies, Vol. 3, No. 2, 1974, pp. 84-97.
7. Szyliowicz, J. S., O’Neill, B.E., “The Oil Weapon and American Foreign Policy,” Air University Review, March-April, 1977.
8. Weisberg, R.C., “The Politics of Crude Oil Pricing in the Middle East, 1970-1975,” Institute of International Studies, University of California, Berkeley, 1977.
9. Detailed discussion available in Alhajji, A.J., “Three Decades after the Oil Embargo: Was the 1973 Unique?” 2005; copies available from the author, [email protected].
10. Licklider, R., “The Power of Oil: The Arab Oil Weapon and the Netherlands, the United Kingdom, Canada, Japan, and the United States,” International Studies Quarterly, Vol. 32, No. 2, 1988, pp. 205-226.
11. Lindsay, J.M., “International Sanctions As Policy Instruments: A Re-Examination,” International Studies Quarterly, Vol. 30, No. 2, 1998, pp. 153-173.
12. Stork, J., “Oil and the International Crisis,” MERIP Reports, No. 32, November 1974.
13. Richman, A., “The Polls: Public Attitude Toward the Energy Crisis,” The Public Opinion Quarterly, Vol. 43, No. 4, 1979.
14. Associated Press, Jan. 1, 2004.
15. Mabro, R., “The Oil Weapon,” OIES Energy Comment, June 2002.
Bibliography
Alhajji, A.F., “Was the 1973 Oil Embargo ‘Unique’?” Journal of Energy & Development, Vol. 30, No. 2, 2005, pp. 1-16.
Alhajji, A.F., “The Failure of the Oil Weapon: Consumer Nationalism vs. Producer Symbolism,” Bridges, Vol. 11, No. 1-2, 2004, pp. 29-67.
Alhajji, A.F., “OPEC Behavior from 1973 to 2003,” Encyclopedia of Energy, Elsevier, Vol. 4, 2004, pp. 767-779.
Knorr, K., “Is International Coercion Waning or Rising?” International Security, Vol. 1, No. 4, 1977, pp. 92-110.
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The author
A.F. Alhajji ([email protected]) is an associate professor of economics at the University of Northern Ohio at Ada, Ohio. He was a research assistant professor and visiting assistant professor at Colorado School of Mines during 1997-2001. He taught for 3 years at the University of Oklahoma, where he received his PhD in petroleum economics in 1995. Alhajji has published more than 300 articles and columns.