1973 Oil Crisis: Measures Taken To Get Out Of The Crisis

1973 oil crisis: Measures taken to get out of the crisis

In this essay we will analyze the different measures by the State that were carried out in order to achieve an exit to the oil crisis, and not fall again on it.

First of all the gas stations established posters which depending on the color that were indicated the amount of fuel that each establishment had:

• A green flag indicated unlimited sale of gasoline.
• A yellow flag denoted restrictions and rationing.
• A red flag indicated that no gasoline was available, but the service station was open for other services.

This ‘solution’ had no effect on the crisis, since it only indicated the status of the establishment where vehicles replied gasoline, and it was an evolution where more and more gas stations were seen with red posters. Inflation had become a real problem that, according to liberal economists, could only be resolved stabilizing the money supply, which indicated the amount of money that an economy possessed in a given period. This offer was generated through the monetary base or the money that circulated, which was determined by the country’s banking system, together with the private sector. This inevitably required a fiscal adjustment, already through greater debt, greater collection or less public spending. The main problem of these ‘stabilization plans’ was that they required a total restructuring of the economy. To worsen the situation, inflation did not usually reduce immediately, but by the effect of ‘drag’ it remained at high levels for some more time, thus sharpening the recessive picture.

In some countries, these partial reforms of the economy derived in extreme cases of ‘hyperinflation’. At the same time, liberal economists began to question Keynesian policies which supported the intervention of the State defending economic policy as the best tool to get out of the crisis, arguing not only economic issues, but also socio-political factors. They argued that the lack of incentives for entrepreneurs, the restriction of individual freedoms and the shortage of products or services highly demanded by the population.

All this led to the emergence of a new socio-economic current: the seven most important nations of the West began to meet annually to try to add efforts in common. In the first place, an attitude of a certain economic protectionism was chosen, although they soon discovered that the great solution would be in the application of neoliberalism.

This is an economic doctrine that establishes that the best system is one that leaves the market participants total, betting on the free market and privatization and advising any state intervention in the economy in the economy. The bad thing about this type of policies is that they benefit large companies at the expense of workers’ well -being.

Before this panorama, the authorities were forced to make decisions that were going to have great consequences. The first one, and the most transcendent in the short term, was referring to the interior sales prices of oil derivatives. A full repercussion of crude oil increase involved folding the sales prices of derived products, something that would have immediate depressive repercussions about economic activity. It was not only transport;since a large part of the oil consumption came from electricity that occurred in the centrals.

Given this event, in Spain, Franco’s last government opted for a repercussion only partial, absorbing the State a part of the increase in the cost of crude oil by means of reducing the taxes that taxed the consumption of derivatives. Thus, while the prices of gasoline and fuel increased only around 20% in real terms, the income of the State due to the sale of oil derivatives decreased by 35%.

On the other hand, a series of decisions were made which had a positive effect in the face of the crisis, thus helping to end it and have a solution to another possible crisis:

• Richard Nixon, the current president of the United States at that time I appoint William and. Simon as the first director of the Federal Energy Office (1973), in order to reduce the consumption of gasoline, and in 1974 a speed limit was established which allowed to circulate to a maximum of 90km/h through the emergency lawEnergy saving on highways.
• On the other hand, in 1975 the United States Strategic Petroleum Reserve was established, which consists of underground caverns which today has 700.000.000 of oil barrels, in order to.UU could face a new oil crisis, being able to exceed the price increase, and the pressure of global markets without problems.
• 1977 The Department of Energy was created, in addition to the National Energy Law of 1978.
• In 1975 the United States Congress approved a series of measures by which the three large car manufacturers launched the reduction of cars sizes so that they had a maximum consumption of 9 liters to 100 km.

It should be noted that the oil crisis marks the principle of a wave of loans by private commercial banks. The banks of the industrialized world had not previously had a dominant role in such loans, but the huge surplus on account of the OPEC countries (organization of oil exporting countries), which followed the increase in oil prices, had toBe ̈recicado ̈ to finance the current account deficit of the rest of the world. The OPEC countries lent their surplus funds to developed countries, and the banks of these countries considered profitable to provide these funds to borrowers from developing countries.