On October 17, 1973, the Organization of the Petroleum Exporting Countries (OPEC) effectuated “oil diplomacy” which prohibited any nation that had taken part in theYom Kippur War with Israel against Syria, Egypt and Jordan to buy any oil that it sells. The energy crisis that ensued brought an end to the era of cheap gasoline and other oil products where New York Stock Exchange saw its share value dropping by $97 billion. This led United States to witness the worst recessions ever. In addition to the embargo creating a rift within NATO, Japan and some Europeans nations disassociated themselves from the U.S. Middle East Policy.
Linking the end of embargo with U.S. efforts to succeed in their peace creating mission in the Middle East complicated the situation further. To make something good out of the matter, United States initiated parallel negotiations, one with the Arab oil producers to end the embargo and the other with Israel, Syria and Egypt to arrange for Israeli troops to pull back from the Arab lands and reach a settlement. In early 1974, the negotiations for withdrawing Israeli troops had begun and the promise made Arab oil producers to lift the ban in March.
It was even before this oil embargo has started, the U.S. government was moving towards an oil crisis with the domestic reserves running low, the country importing nearly 27% of the crude petroleum, and oil prices rising drastically. The situation was worsened after the 1973 Israel war where OPEC declared the cut back on oil 5% a month as a punishment for the allies of Israel until they stop the occupation in the Palestinian lands and withdraw their forces. Furthermore, it announced that the nations unwilling to comply will be subjected to total embargo.
According to the usual practice, where at one time per-barrel prices were set by the oil companies themselves, OPEC declared that it would set the export prices of oil itself. Consequently, the price of one barrel of oil reached up to nearly $11. This rate was recorded to be 387% higher than the prices a year ago. Shortages persisted, with an increase in domestic oil prices as well. People in America had to wait in long queues at gas stations. Until Arab nations lifted the embargo in 1974, the retail price of gas had climbed from 38 cents per gallon to 84 cents per gallon.