| |  The seventies is where terrorism's financial roots lie. The greatest transfer of wealth history has ever seen, poured trillions from the developed nations into the then primitive OPEC nations - money and power they would never have acquired on their own. This gave them the funds needed to wage wars and fund terrorism. Much of what we suffer now, began then. The failure of the governments of the developed nations to stop the theft of oil company assets can be seen below, year after year after year.
The first chart is from Wikipedia and clicking here takes you to the page it's from. On that page each of the numbers on the chart represents a note in the chronology which is described on that page. Much of the important history took place before the sharp up-turns (unhooking the dollar from gold, OPEC formation, Nixon's plans for price controls, foriegn nationalization of oil company assets, and growing tension over Israel.)
I remember those long gas lines in California. Odd numbered days were for people whose license plates ended in an odd number - even days, even numbers. The lines were long, but it didn't feel like a hardship, just a nuisance.
I poked through some more Wikipedia articles and copy-pasted text to show a chronology of the major points. I edited the copied text - mostly just cutting out details, trying to shrink this massive post). My numbers do NOT correspond to those on the chart.
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1) During 1970: U.S. Federal oil depletion allowance reduced from 27.5 to 22.0 percent - an additional tax burden on American oil producers. TAP line from Saudi Arabia to the Mediterranean interrupted in Syria, creating all-time tanker rate highs from June to December. Libya raises posted prices and increases tax rate from 50 percent to 55 percent. Iran and Kuwait follow in November. OPEC meeting in Caracas establishes 55 percent as minimum tax rate and demands that posted prices be changed to reflect changes in foreign exchange rates. Economic Stabilization Act of 1970 is passed, giving President Richard Nixon unprecidented powers to ration and set price controls.
-- Note: OPEC learning to flex its muscles
2) First half of 1971: Negotiations begin in Tehran between 6 Gulf producing countries and 22 oil companies. OPEC mandates "total embargo" against any company that rejects the 55 percent tax rate. Tehran agreement signed. Companies accept 55 percent tax rate, immediate increase in posted prices, and further successive increases. Algeria nationalizes 51 percent of French oil concessions. Libya concludes five weeks of negotiations with Western oil companies in Tripoli on behalf of itself, Saudi Arabia, Algeria and Iraq. Agreement raises posted prices of oil delivered to Mediterranean from $2.55 to $3.45 per barrel; provides for a 2.5 percent annual price increase plus inflation allowance; raises tax rate from a range of 50-58 percent to 60 percent of posted price. Venezuela's Hydrocarbons Reversion Law mandates gradual transfer to government ownership of all "unexploited concession areas" by 1974 and "all their residual assets" by 1983.
3) August 15, 1971, the United States pulled out of the Bretton Woods Accord taking the US off the Gold Exchange Standard (whereby only the value of the US dollar had been pegged to the price of gold and all other currencies were pegged to the US dollar), allowing the dollar to "float". Shortly thereafter, Britain followed, floating the pound sterling. The industrialized nations followed suit with their respective currencies. In anticipation of the fluctuation of currencies as they stabilized against each other, the industrialized nations also increased their reserves (printing money) in amounts far greater than ever before. The result was a depreciation of the value of the US dollar, as well as the other currencies of the world. Because oil was priced in dollars, this meant that oil producers were receiving less real income for the same price. The OPEC cartel issued a joint communique stating that forthwith they would price a barrel of oil against gold. This led to the "Oil Shock" of the mid-seventies.
-- Note: Harry Browne saw this coming back in the 60's and published "The Coming Devaluation" in 1970.
4. Last half of 1971: U.S. Government institutes Phase I price controls. Invoking the powers granted to the president by the Economic Stabilization Act of 1970, President Richard Nixon orders 90-day nationwide freeze on all wages, prices, salaries and rents. OPEC directs members to negotiate price increases to offset the devaluation of the U.S. dollar. U.S. Phase II price controls begin. Plan is to allow for gradual 2-3 percent annual price increases, however, domestic petroleum prices remain at Phase I levels. Libya nationalizes British Petroleum concession.
5. 1972: Abu Dhabi, Iran, Iraq, Kuwait, Qatar and Saudi Arabia - meet with Western oil companies and raise the posted price of crude by 8.49 percent to offset the loss in value of oil concessions attributable to the decline in value of the U.S. dollar. OPEC threatens "appropriate sanctions" against companies that "fail to comply with . . . any action taken by a Member Country in accordance with [OPEC] decisions."
Iraq nationalizes Iraq Petroleum Company's (IPC) concession owned by British Petroleum, Royal Dutch-Shell, Compagnie Francaise des Petroles, Mobil and Standard Oil of New Jersey (now Exxon). The concessions were valued at over one billion dollars. In a show of support for Iraq, OPEC moves to prevent companies whose interests were nationalized in Iraq from increasing production elsewhere; appoints mediators between Iraq and IPC. Libya acquires a 50 percent interest in two ENI concessions. OPEC approves plan providing for 25 percent government ownership of all Western oil interests operating within Kuwait, Qatar, Abu Dhabi and Saudi Arabia beginning on January 1, 1973, and rising to 51 percent by January 1, 1983. (Iraq declines to agree.) Agreements signed on December 21.
6. The Washington Times article, How gas price controls sparked '70s shortages discussed the effect of the price controls:
"The era of price controls is most remembered for long lines at gas stations. The controls were put in place by the Nixon and Ford administrations in reaction to a jump in fuel prices caused by cuts in production by the newly formed international oil cartel, the Organization of Petroleum Exporting Countries. Back then, "price controls turned a minor adjustment into a major shortage," said Thomas Sowell, author of "Basic Economics: A Citizen's Guide to the Economy."
7. 1973: U.S. Phase III price controls begin. Nixon suspends mandatory oil import quota on No. 2 heating oil. Shah of Iran announces that the 1954 operating agreement between Iran and Standard Oil of New Jersey, Standard Oil of California, SOCONY-Vacuum, the Texas Company, Gulf, Royal Dutch-Shell, the Compagnie Francaise de Petroles will end and decides on compensation for nationalization. Special Rule No. 1 reimposes mandatory (Phase II) price controls on the 23 largest oil companies. Smaller companies, representing 5 percent of the market, enjoy uncontrolled prices. Shah of Iran and Consortium members agree to nationalize all assets immediately. OPEC discusses raising prices to offset decline of U.S. dollar value. April 1: OPEC increases posted prices by 5.7 percent. Later, eight OPEC countries raise posted prices by another 11.9 percent. Libya nationalizes Bunker Hunt concession; Nigeria acquires 35 percent participation in Shell-BP concession. Nixon administration imposes 60-day economy-wide price freeze, superseding Special Rule No. 1 for oil companies. Libya nationalizes 51 percent of Occidental Petroleum concession and of the Oasis consortium. Nixon's Cost of Living Council imposes two-tier price ceiling on crude petroleum sales. Libya nationalizes 51 percent of nine other companies' concessions: Esso, Libya/Sirte, Mobil, Royal Dutch Shell, Gelensberg, Texaco, SoCal, Libyan-American (ARCO), and Grace. Conference of less developed countries approves forming "producers' associations," calls for withdrawal of Israeli forces from occupied Arab lands. OPEC supports price hikes and designates six Gulf countries to negotiate collectively with companies over prices. Kuwait rejects gradual participation increase plan, insists on immediate 60 percent participation.
October 6: Beginning of fourth Arab-Israeli War. Iraq nationalizes Exxon and Mobil shares in Basrah Petroleum Company representing 23.75 percent equity in the company. The Gulf Six (Iran, Iraq, Abu Dhabi, Kuwait, Saudi Arabia and Qatar) unilaterally raise the posted price of Saudi Light marker crude 17 percent from $3.12 to $3.65 per barrel and announce production cuts. OPEC oil ministers agree to use oil weapon in Arab-Israeli War, mandate cut in exports, and recommend embargo against unfriendly states. Saudi Arabia, Libya, and other Arab states proclaim an embargo on oil exports to the United States. Arab oil embargo extended to the Netherlands. Arab producers announce 25 percent cut in production below September levels. Further cuts of five percent are threatened. Arab summit conference adopts open and secret resolutions on the use of the oil weapon. Embargo extended to Portugal, Rhodesia, and South Africa. Nixon signs the Emergency Petroleum Allocation Act (EPAA). Authorizes petroleum price, production, allocation and marketing controls. Arab oil ministers announce a further production cut of 5 percent for January for non-friendly countries. OPEC Gulf Six decides to raise the posted price of marker crude from $5.12 to $11.65 per barrel effective January 1, 1974.
Imports of oil to the U.S. dropped from 6 million in September 1973 to 5 million in subsequent months
By December 1973, the price per barrel rose 130%
8. 1974: OPEC decides to freeze posted prices until April 1. Libya nationalizes three U.S. oil companies that had not agreed to 51 percent nationalization in September. Arab oil ministers announce the end of the embargo against the United States, all except Libya. Nigeria announces 55 percent government participation in all concessions. Arab oil ministers decide to end most restrictions on exports of oil to the United States but continue embargo against the Netherlands, Portugal, South Africa, and Rhodesia. Saudi Arabia announces that it will increase its participation [nationalization] in Aramco to 60 percent. Abu Dhabi and Kuwait follow in September. Increases are retroactive to January 1. IMF establishes its "oil facility," a special fund for loans to nations whose balance of payments have been severely affected by high oil prices. Saudi Arabians raise tax rate to 85 percent and royalty rate to 20 percent. U.S. Crude Oil Entitlements Program enacted, retroactive to November 1974.
9. 1975: U.S. Federal oil depletion allowance eliminated for large producers [higher taxes]. Twenty-four OECD members sign an agreement to establish a $25 billion lending facility to provide assistance to industrial nations hurt by high oil prices. World Bank establishes its "Third Window," a fund to make loans to countries too rich to qualify for "soft" no-interest loans, but too distressed to afford loans at the prevailing normal lending rates. OPEC announces a 15 percent increase in government per barrel revenues. Venezuela and foreign oil companies agree on nationalization. Kuwait and Gulf and BP agree on terms of nationalization. Iraq completes nationalization by taking over the BP, CFP, and Shell shares of the Basrah Petroleum Company. U.S. President Gerald Ford signs the Energy Policy and Conservation Act (EPCA) effective February 1976. Authorizes the establishment of the Strategic Petroleum Reserve (SPR), participation in International Energy Program, and oil price regulation.
10. 1976: EPCA 3-tier price regulation begins. Small changes in Entitlements Program. Lebanese civil war causes a drop in Iraq exports through trans-Lebanon pipelines to the Mediterranean. OPEC issues press release vowing to "take appropriate measures" to protect OPEC interests in light of protectionist actions by certain countries. Moderates and OPEC "hawks" disagree on how fast oil prices should rise. Saudi Arabia and United Arab Emirates increase prices by 5 percent, others by 10 percent.
11. 1977: OPEC goes to two-tier pricing (Saudi Arabia and United Arab Emirates use $12.09 per barrel and other OPEC countries use $12.70per barrel). Fifty percent of Saudi Arabia's 10 MMB/D production is halted briefly due to fire damage to separation facility in Abqaiq field. Prices increase slightly. OPEC prices reunified at $12.70 per barrel as Saudi Arabia and UAE fall into line, then official price rises to $13.66 per barrel.
12. 1978: Student protests against government of Reza Pahlavi, Shah of Iran, begin, touching off a wave of political unrest and violent clashes between police and demonstrators. Throughout the year increasing anti-Shah activities are led by Muslim fundamentalists seeking to establish a Muslim state. Shah puts Iran under military rule. Iranian strikes; departure of foreign technicians. Pipeline fire drops Iraqi production from 600,000 to 300 million barrels per day (48,000,000 m³/d). Iranian production hits 1.5 MMB/D in mid-December; 500,000 on December 27, a 27-year low. OPEC decides on a 14.5 percent price increase for 1979, to be implemented quarterly.
13. 1979: First emergency Crude Oil Buy-Sell Program allocations. Shah leaves Iran on vacation, never to return. Bakhtiar government established by the Shah to preside until unrest subsides. Saudi Arabia announces drastic cut in first-quarter production. 9.5 MMBD ceiling imposed. Spot prices of Middle East light crudes rise 36 percent. One million Iranians march in Tehran in a show of support for the exiled Ayatollah Khomeini, fundamental Muslim leader. Bakhtiar resigns as prime minister of Iran after losing support of the military. OPEC makes full 14.5 percent price increase for 1979 effective on April 1. Marker crude raised to $14.56 per barrel. DOE announces $5 per barrel entitlement to importers of heating oil. Saudi Arabia announces intention to increase direct sales and to sell less through Aramco. Both announcements send prices higher. Phased oil price decontrol begins. Involves gradual 28 month increase of "old" oil price ceilings, and slower rate of increase of "new" oil price ceilings. OPEC raises prices average of 15 percent, effective July 1. Canada eliminates light crude oil exports to U.S. refiners, except for those exports required by operational constraints of pipelines. Iran takes western hostages. U.S. President Jimmy Carter orders cessation of Iranian imports to U.S. Iran cancels all contracts with U.S. oil companies. Saudi Arabia raises marker crude price to $24 per barrel.
14. 1980: Windfall Profits Tax enacted. Saudi Light raised to $28.00 per barrel, retroactive to April 1. Iraq breaks 1975 treaty with Iran and proclaims sovereignty over Shatt al-Arab waterway. Iraq invades Iran. Mutual bombing of installations. Iraq captures southern port of Khorramshahr.
15. 1981: Saudis flood market with inexpensive oil in 1981, forcing unprecedented price cuts by OPEC members. In October, all 13 OPEC members align on a compromise $32 per barrel benchmark. Later, benchmark price is maintained, but differentials are adjusted. Iraq repels first major Iranian offensive. Ronald Reagan lifts remaining domestic petroleum price and allocation controls originally scheduled to expire in September 1981. Windfall profits tax reduced. OPEC reaches an agreement to unify crude price at $32 per barrel through 1982 and sets an ultimate price ceiling of $38 per barrel. Major Iranian offensive mounted on central front.
16. 1982: Indications of a world oil glut lead to a rapid decline in world oil prices early in 1982. OPEC appears to lose control over world oil prices.
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That ends the the chronology of events that mark the 1970's oil crisis.
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Note the ground work for all the structures that increased prices: Allowing nationalization that made OPEC possible, inflation of the dollar that led to breaking the dollar's connection to gold, passing price controls and rationing legislature, OPEC's growing strength and with its increases in funds, the ability to wage war and fund terrorism.
Without these, we wouldn't be where we are.
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There is a spike in prices in 1990 through 1992 that mark the Iraq invasion of Kuwait and the Gulf War.
The sharp climb in price from 1999 into 2001 is due to OPEC pledges additional production cuts for the third time since March 1998. Total pledged cuts amount to about 4.3 million barrels per day. Oil prices triple between January 1999 and September 2000 due to strong world oil demand, OPEC oil production cutbacks, and other factors, including weather and low oil stock levels.
Oil prices decline sharply following the September 11, 2001 terrorist attacks on the United States, largely on increased fears of a sharper worldwide economic downturn (and therefore sharply lower oil demand). Prices then increase on oil production cuts by OPEC and non-OPEC at the beginning of 2002, plus unrest in the Middle East and the possibility of renewed conflict with Iraq. Additional tensions in the middle-east, Venezuela, Nigeria and production cuts continue to be the driving force in price increases from that point forward.
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