Number of words: 732

Today’s oil business started on the cusp of the American Civil War ( which pitted the industrialised North against the slave dependent South ) when , in August 1859 , Edwin L. Drake drilled down seventy – five feet on a farm in Pennsylvania and thus began Rockefeller later consolidated to a near – monopoly with Standard the market for small , independent oil producers that John D. Oil . The US remained the world’s leading producer until its oil fields began to peak in 1970 at 11.3 million barrels of oil per day. However, the country’s insatiable demand for oil to lubricate its vast suburban networks led the US to lose its energy independence and its position as the global price setter and to cede power to the Organisation of Petroleum Exporting Countries ( OPEC ) led by Saudi Arabia – a cessation that planted the seeds of the first oil crunch . By 1973 , the Saudis had enormous surplus capacity at a time when worldwide oil dependency was sky high , having jumped from 19 million barrels per day in 1960 to 44 million by 1972 , which is about half of today’s demand . 

The US rowed in behind Israel during the Yom Kippur War against Egypt and Syria , prompting Egypt’s President Anwar Sadat to call for oil to be used as a weapon against Israel’s allies . On 12 October 1973 OPEC demanded a doubling of its oil price and when Aramco , a combination of Western oil companies , stalled for time , OPEC’s Persian Gulf members took control of the market , announcing that they would set the price thereafter . That October day, the day that the Israeli military gained advantage over the Golan Heights and the Sinai, Arab oil ministers announced an oil embargo to the USA and increased European prices by 70 %. Although a UN – sponsored ceasefire ended the war on 22 October 1973. The OPEC embargo against the US remained until March 1974. The shock of OPEC’s dominance on oil prices triggered a 15 % fall in the US stock market in the first month of the embargo and a further 30 % fall over the following year as US inflation climbed to as high as 12.8 % . Industrial nations fell into the worst recession since the 1930s as high borrowing rates choked business expansion and house buying.

Just as the world was recovering from the events of 1973-4 , the fall of the Shah of Iran to an Islamic revolutionary government led by Ayatollah Ruhollah Khomeini in 1979 pulled Iran from the oil market and underscored just how sensitive oil prices were to supply shocks . Iran produced 2.5 million barrels of oil per day, s % of global supply . Its loss hiked prices by 150 % , petrol queues returned and the price of a gallon of petrol jumped threefold . In the autumn of 1979 , fifty – two hostages were taken by Iranian students at the US embassy in Teheran and held for more than a year , during which time Saddam Hussein of Iraq invaded Iran and severely damaged its oil fields and refineries . The Iran Iraq War removed 8 % of global oil supply , resulting in prices shooting up further .

 The energy crisis of the 1970s led to stagflation, a combination of inflation ( rising prices for consumers and businesses ) and deflation ( falling values for lots of businesses and assets ) that flummoxed government decision making . Rising oil prices, leading to high inflation, cannot be cooled down by the traditional central bank reflex of raising interest rates, a method favoured by the European Central Bank. In essence, rising oil prices are like taxes. The money paid by consumers, after paying national taxes, flows to energy producers, distributors and service companies who make a bundle – as do their shareholders . Effectively there is a massive transfer of wealth from those negatively exposed to high energy – led inflation to those positioned to benefit from it . The extra cost of energy adds to the cost of everything and discourages business expansion. The result is a combination of high unemployment, high inflation and economic recession. The economy goes one way (downwards), prices go the other way (upwards), and consumers are squeezed in the middle . 

Excerpted from  pages 17 to 19 of ‘Energise, by Eddie Hobbs