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Autumn 1973 – The OPEC Oil Crisis: Forcing Up World Oil Prices

The Organization of Petroleum Exporting Countries (OPEC) was formed in 1960, but its strength and impact were not felt until 1973, when the cartel decided to raise oil prices dramatically by cutting back on world supply.

With gas-guzzling automobiles, expanding highways and mushrooming suburbs, the North American economy was increasingly fuelled by oil. When OPEC turned down the spigot and jacked up the price, the impact was tremendous. The increase in oil prices led to stagflation (a combination of high inflation and high unemployment) in most industrial nations.

In Canada, inflation climbed to over 10% in 1974 and 1975, while unemployment increased to 7% by 1975. The stagflation effects were muted here initially because the Government of Canada had already begun tightening its management of Canadian oil supplies before the crisis. It intensified these controls afterward.

The National Oil Policy was introduced in 1961 to shelter Canada’s oil industry by establishing a market west of Quebec that would rely on oil from Western Canada. In March 1973, in the face of rapidly growing demand from the United States, the Government of Canada decided to control the export of Canadian oil and thereby ensure the domestic supply. By September, the government reinforced its control over the resource by freezing the domestic price of oil below the world price and by taxing exports of oil.

As this new energy policy took shape, a long struggle began between the federal government and the Western provinces—Alberta was particularly infuriated—for control of energy prices and revenues. Moreover, multinational oil companies were displeased to see their soaring profits limited by the new federal policies. In December 1973, partly in response to the OPEC oil crisis, the government created Petro-Canada to spur oil and gas exploration, to help develop the Alberta tar sands, to obtain reliable imports and to gain better information about a strategically important industry.

OPEC continued asserting itself on the world stage and gained greater control of the oil industry. The cartel quadrupled world oil prices from 1973 to 1974 and prices rose significantly again (150%) in 1979 in the wake of the Iranian Revolution.

In response, the Government of Canada once again put greater controls on domestic oil prices, which had up to that point been edging closer to world prices. In 1980, it created the National Energy Program to further control energy resources. This program was dismantled by the Progressive Conservative government after its 1984 election victory.

Links

Natural Resources Canada - Oil Division
Source: Natural Resources Canada
http://www.nrcan.gc.ca/es/erb/od/pips/

The Auto$mart Program
Source: Natural Resources Canada
http://autosmart.nrcan.gc.ca/

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