1973 Arab Oil Embargo: Sadat's Backgammon, Nickel Grass and Empty Pumps

SPEAKER_1 (0:00)

Picture this, it is the mid 1970s, you are standing in Saudi Arabia, specifically looking out at the Red Sea port city of Jeddah.

SPEAKER_2 (0:08)

Okay, setting the scene, I like it.

SPEAKER_1 (0:10)

And there is a construction boom happening that is so massive, I mean, so entirely unprecedented that the port is just hopelessly gridlocked.

SPEAKER_2 (0:19)

Oh yeah, ships are just sitting there in the water.

SPEAKER_1 (0:21)

Exactly, they are packed to the brim with cement, but physically unable to dock. So the construction contractors are losing time, they are bleeding money, and they resort to this absolutely surreal solution.

SPEAKER_2 (0:34)

It is so wild. They literally hire fleets of helicopters.

SPEAKER_1 (0:38)

Yes, they hire helicopters to hover over the ships and airlift the bags of cement to the shore, like 20 bags at a time.

SPEAKER_2 (0:46)

It really looks like a scene from some dystopian movie, you know, just depicting this extreme collision of sudden unfathomable wealth and sheer desperation.

SPEAKER_1 (0:55)

Yeah, that visual of using helicopters as heavy-duty cargo cranes for basic building supplies, it perfectly captures the chaos of the era. The logistical strain of pouring that much concrete into a society that just didn't have the infrastructure for it yet.

SPEAKER_2 (1:10)

Totally. It is the perfect metaphor for what we are talking about today.

SPEAKER_1 (1:13)

Which brings us to today's Deep Dive. We are looking at a stack of historical and economic texts detailing the 1973 oil crisis.

SPEAKER_2 (1:21)

Right, a defining moment in modern history.

SPEAKER_1 (1:23)

Absolutely. And our mission today is to figure out how a sudden geopolitical maneuver completely shattered what historians call the long summer of cheap energy.

SPEAKER_2 (1:33)

And I mean, it fundamentally reshaped daily life, global wealth and international relations for decades to come.

SPEAKER_1 (1:40)

Yeah. Every time you see fuel efficiency standards on a new car or hear a debate about alternative energy, you are looking at the direct fallout of October 1973

SPEAKER_2 (1:50)

It is still visible everywhere. We are absolutely still living in the shadow of this crisis.

SPEAKER_1 (1:56)

So to really grasp the profound shock of that moment, we have to establish the sheer level of complacency that came right before it.

SPEAKER_2 (2:03)

Oh, the complacency was staggering.

SPEAKER_1 (2:04)

Right. The world and particularly the United States had developed this profound structural addiction to historically cheap oil. And looking at the economic data in the sources, oil wasn't just cheap. It was actually getting cheaper in real terms throughout the 1960s. Yeah.

SPEAKER_2 (2:19)

A barrel of oil hovered around a dollar and 80 cents for an entire decade.

SPEAKER_1 (2:23)

Wow.

SPEAKER_2 (2:24)

I know.

SPEAKER_1 (2:24)

A dollar 80

SPEAKER_2 (2:25)

I know. If you adjust for inflation, consumers in Western nations were actually paying less for oil in 1969 than they had been in 1959

SPEAKER_1 (2:33)

That is incredible to think about. But it also triggered a really dangerous shift in core infrastructure. Like in 1951, 51 percent of American industry ran on coal.

But by 1973, that number had plummeted to just 19 percent. So the entire industrial engine of a global superpower had switched its fundamental diet to oil.

SPEAKER_2 (2:54)

Pretty much overnight in historical terms, yeah.

SPEAKER_1 (2:56)

But the wild part is, at the exact moment American demand was reaching this fever pitch, their domestic supply hit a brick wall.

SPEAKER_2 (3:03)

Right. US domestic oil production officially peaked in 1970

SPEAKER_1 (3:08)

Which forced a massive uncomfortable pivot. The US went from being relatively self-sufficient to drastically increasing its oil imports and by 1972, they were largely relying on the Middle East.

SPEAKER_2 (3:21)

You would think they would manage this vulnerable transition carefully, right?

SPEAKER_1 (3:24)

You would hope so.

SPEAKER_2 (3:25)

But no. Instead, President Nixon actually maintained import quotas and imposed a price ceiling in 1971

SPEAKER_1 (3:33)

Wait, he capped the price of gas.

SPEAKER_2 (3:35)

He did. The economic mechanics of that decision were just disastrous for long-term stability.

SPEAKER_1 (3:41)

I can imagine. By artificially capping the price consumers paid at the pump, the administration practically encouraged the public to consume even more of a resource they were running out of.

SPEAKER_2 (3:51)

Exactly. And meanwhile, it discouraged domestic oil companies from exploring for new reserves.

SPEAKER_1 (3:56)

Because the profit margins were artificially suppressed. Why look for more oil if you can't make money on it?

SPEAKER_2 (4:02)

Right.

But the vulnerability wasn't just in physical barrels of oil. It was deeply entangled in the architecture of global finance.

SPEAKER_1 (4:10)

Oh, right. We have to talk about the massive economic shift in 1971 with the gold standard.