The Organization of the Petroleum Exporting Countries (OPEC) implements what it calls "oil diplomacy" on this day in 1973: It prohibits any nation that had supported Israel in its "Yom Kippur War" with Egypt, Syria and Jordan from buying any of the oil it sells. The ensuing energy crisis marked the end of the era of cheap gasoline and caused the share value of the New York Stock Exchange to drop by $97 billion. This, in turn, ushered in one of the worst recessions the United States had ever seen.
In the middle of 1973, even before the OPEC embargo, an American oil crisis was on the horizon: Domestic reserves were low (about 52 billion barrels, a 10-year supply); the United States was importing about 27 percent of the crude petroleum it needed every year; and gasoline prices were rising. The 1973 war with Israel made things even worse. OPEC announced that it would punish Israel's allies by implementing production cuts of 5 percent a month until that nation withdrew from the occupied territories and restored the rights of the Palestinians. It also declared that the true "enemies" of the Arab cause (in practice, this turned out to mean the United States and the Netherlands) would be subject to an indefinite "total embargo." Traditionally, per-barrel prices had been set by the oil companies themselves, but in December, OPEC announced that from then on, its members would set their own prices on the petroleum they exported. As a result, the price of a barrel of oil went up to $11.65, 130 percent higher than it had been in October and 387 percent higher than it had been the year before.
Domestic oil prices increased too, but shortages persisted. People waited for hours in long lines at gas stations—at some New Jersey pumps, lines were four miles long!--and by the time the embargo ended in March 1974, the average retail price of gas had climbed to 84 cents per gallon from 38 cents per gallon. Sales of smaller, more fuel-efficient cars skyrocketed. At the same time, declining demand for the big, heavy gas-guzzlers that most American car companies were producing spelled disaster for the domestic auto industry.