An embargo—a stoppage of oil shipments from OPEC countries to the West—that created a severe energy crisis among the western industrialized nations.
Arab displeasure with the pro-Israeli policy of the United States and some European countries during the October 1973 Yom Kippur war in the Middle East occasioned the imposition of an oil embargo by the Organization of Petroleum Exporting Countries (OPEC) on October 18, 1973. This embargo remained in effect until March 18,1974.
The ramifications, especially for the United States, soon became evident. The most visible sign in the United States was long lines at service stations, many of which, if not all, began to close on Sundays as their supplies of gasoline dwindled.
Another major consequence of the embargo involved the phenomenal increase in the per-barrel price of crude oil worldwide. That inflation, while important during the five months of the actual embargo, continued to affect prices until the end of 1985, when the per-barrel cost of oil finally began to moderate. Oil prices reached their peak levels in 1980 and 1981, when they ranged between $35 and $40 per barrel—the latter figure prevailing during the Iranian Revolution of 1981.
With this global oil boom triggered by the Arab oil embargo, oil companies, particularly in the United States, garnered tremendous earnings. American companies showed record profits in 1973, up on average 48 percent from 1972. Profits continued to rise, too. In the first six months of 1974 they jumped 82 percent over their level a year earlier.
The American public, including most of its congressional representatives, raised a groundswell of opposition. Congress implemented two pieces of legislation of paramount importance. The first came in 1975, when Congress disallowed the 27 percent depletion allowance for the major oil companies, retaining it only for small producers. This allowance, dating from 1926, had permitted American oil companies to reduce their taxable income by as much as 27 percent per company. The second action took place during the administration of President Jimmy Carter. In 1980 Congress, responding to recurring energy shortages, rising energy costs, and the reports of record profits by major American oil companies, imposed the Windfall Profits Tax. The act included the largest tax ever imposed on a single industry and was expected to increase federal revenues by at least $227 billion during the 1980s.
Congress also created the Strategic Petroleum Reserve (SPR) in 1976. The SPR provided for the storage of crude in underground reservoirs to be held in reserve and used only in the event of a future crisis in oil supplies. The SPR attained its maximum storage in 1994 of 592 million barrels.
