This paper was my MA Thesis.  I think it fits in well here.  Enjoy.  - Clint Portis

Over the Barrel, Under the Thumb: Why American Energy Vulnerability Led To the United States’ Geopolitical Preeminence in the Near East.

Since 1973, OPEC has played an important role in effecting international oil markets and, in turn, affecting the internal and external policies of many states in the West, including the United States.  Although cutbacks in oil production crippled Western economies during the 1970s, changes in the international community resulted in a vastly different relationship between the West and the oil producing states of the Persian Gulf.  Prior to 1973, states like Saudi Arabia held an individual agency which ceased to exist by the end of the decade.  Because international competition between the Soviet Union and United States effectively ended in the region, huge influxes of wealth destabilized internal stability, large amounts of revenue was consumed in a localized arms race, and increased national budgets were closely tied to increased oil revenue, an environment of growing dependency on the West for economic and military survival developed and grew in the years following the initial production cuts.

Introduction:

During the 1973 Yom Kippur War, the Organization of Petroleum Exporting (OPEC) states of the Middle East reduced oil production in retaliation for Western support of Israel, forcing the United States to reconsider nearly thirty years of dependence on inexpensive and plentiful energy.  Egyptian President Jamal Abd An-Nasser entertained the idea of influencing Western support for Israel by implementing a systematic plan to use oil as a weapon as early as 1956, with an attempt to implement the plan during the Six-Days War in 1967.  The lack of coordination between the Arab states thwarted the execution of such a plan, due in part to the rapid success of the Israeli Defense Forces in dividing the Arab military coalition.[1] As a result of the fallout from the 1967 war and the inability of the Arab states to develop a synchronized export and pricing policy, the Arab states formed the Organization of Arab Petroleum Exporting Countries (OPAEC) in late 1967.  This new group created a homogenous set of policies that would strengthen their international position by displaying the vulnerability of the West on Arab hydrocarbons.[2] In addition to changing Western pro-Israeli policy in the Middle East, Arab leaders sought to replace foreign aid revenue which had continued to dwindle during the previous two decades.[3] It was the Yom Kippur War of October 1973 between Israel and the Arab States, and the unintended and embarrassing daytime arrival of American C-5 Galaxy aircraft to re-supply the Israeli military, which created the conditions necessary for a unified Arab response through the adoption of OPAEC production cuts.

Although the United States depended less on Arab oil than its Western allies, production cuts caused rising oil prices and fuel hoarding, affecting the international oil market.  These conditions prompted both the Nixon and Ford Administrations to respond to the new oil regime by expanding energy exploration and conservation (daylight savings, 55 mph speed limits, fuel and size regulations for vehicles, research in alternative sources) and altering Mid-East policy to accommodate Arab issues at the expense of Israel.[4] Although the Carter Administration maintained and expanded this policy during 1977 and 1978, the United States was once again ill-prepared to deal with renewed energy shortages in 1978 and 1979 as Iranian supplies were removed from the world market.

Iranian oil production dropped drastically in 1978 and 1979 as widespread strikes throughout the country brought the Shah’s abdication and production facilities became increasingly disorganized.  With Iran no longer contributing to international oil quotas, Saudi Arabia and the Persian Gulf States moved to increase production to reduce energy pressures on the West.[5] Despite the efforts of the Arab states to offset undue pressure on the West, the increase in production did little to alleviate price increases in the United States and Europe which contributed significantly to the political downfall of the Carter Administration in 1979-1980.

Although Iranian production returned to a level of normalcy by 1980, open conflict between Iraq and Iran in 1981 essentially removed both producers from the international market for a majority of the remainder of the decade.  Despite these events and the increased risk of international access to the Persian Gulf, oil prices remained relatively stable.  The contradictory relationship between these events and its effect on international oil prices appeared to indicate that the positive changes in American foreign policy towards the Arab states and modifications energy policy had finally mitigated the vulnerability of the United States to production changes in oil from the Middle-East.