lift of the embargo by negotiating a temporary settlement and convincing Israel to withdraw from part of the occupied territories---The oil crisis was thus a political and economical achievement for the Middle East. Firstly, this showed how the OPEC nations had now seized upon petroleum as the essential instrument of global diplomacy, Secondly, while the global economy was previously one in which the US was central, the oil crisis had forced the latter to devolve as the world’s premier economic power, succumbing for the first time to the political demands of the OPEC nations(albeit minimal). The fact that the oil-crisis provided OPEC nations the opportunity to seize control over the world’s economy through oil signified the start of the US no longer being able to retain its position of economic hegemony- an event significant enough to qualify as a “turning point” in the global economy’s development.
Besides causing a shift in power away from the US, the 1973 oil crisis was also instrumental in the formation of the G-7, another major factor that qualifies it as a turning point. The G-7 was established 1976, when Canada joined the Group of Six: France, Germany, Italy, Japan, United Kingdom, and United States, and was formed originally with the main aim of tackling the 1973 oil crisis and bringing back economic stability to the world. Today, its aims have expanded to beyond that. Currently, it has expanded to become the G-8(including Russia) and provides a forum for world leaders to collaborate on collective problems, to manage the world economy, and to address issues arising from interdependence and globalization e.g. trade, labor, terrorism etc. The G7 nations also work closely with other organizations, in particular the IMF and the Organization for Economic Co-operation and Development (OECD).Some of the greatest contributions of the G-7 nations would be their monetary contributions to the IMF, the forgiving of 90% of the $100 billion debt of the 3rd world countries through the Cologne Initiative in 1999, and the G-7 summits held following the US 1987 crisis to monitor global exchange rate stability. The birth of such a club of advanced industrialized states that discusses important global economic, financial, and political issues marked a significant progress in the global economy , and would not have been possible without the onset of the 1973 oil crisis that sparked its formation- thus justifying the latter as a crucial turning point in the world economy’s development.
Yet, despite the fore-mentioned positive impacts of the oil crisis, it is still somewhat an exaggeration to regard the oil crisis as a “turning point”. Partly, aside from the creation of the G-7, the temporary nature of the oil crisis simply meant that the Arabs were unable to be economically dominant in the long-run and sustain their resource-rich potential to exert monumental changes in the international economy, as their more pressing concern was political - to achieve a more negotiable Israel. Thus, the effects of the event did not have much lasting economic impacts on the global economy that caused any major transformations.
Rather, preceding events such as the collapse of the Bretton Woods System qualify more as a turning point in development of the global as it signified the dawning of the era of flexible and floating exchange rates, a complete change from the previous system of pegged exchange rates and a huge transformation for the global financial system.
The Bretton Woods system was established in 1944 aimed at containing the contradictions of the world economy and preventing the development of socialist revolution; and was ever since the central foundation of the post-war international financial system. However, with the decline of US hegemony and increasing dissatisfaction with the privileged role of the U.S. dollar as the international currency, along with the weakening state of the dollar, the system was becoming almost impossible to maintain.
Throughout the 1950s the US was still able to sustain a balance of payments deficit to finance loans, aid, and troops for allied regimes. However, during the 1960s, the costs of doing so became less tolerable. By the 1970s, the U.S. alarmingly held under 16% of international reserves. Adjustment to these changed realities was impeded by the U.S. commitment to fixed exchange rates and by the U.S. obligation to convert dollars into gold on demand. With increasing tolls on the Bretton Woods system, it finally collapsed after a last-gasp devaluation of the dollar to $44/ounce, and reopened in March in a floating currency regime. Its demise was thus a major turning point, one much crucial and significant than the 1973 oil crisis in the global economic development; as it inaugurated a new stage characterized by the development of globalized production and the domination of an international financial market- a watershed from the previous system that was pegged to the gold standard, and US-dominated.
Perhaps it would be more apt to assert that 1973 oil crisis, with its economic impacts, served more as a catalyst for another turning point: the third world debt crisis; rather than being a turning point itself.
As a result of the 1973 oil crisis, rising oil prices contributed to a rapid increase in Third World debt. Because of the mounting cost of fuel and other imports, many non-oil producing third world countries had to double or triple their borrowing just to keep their economies going at pre-1970 levels. Such a situation is further exacerbated by the existing immense profits accumulated by oil companies. The latter had been eager to invest these “petrodollars” as quickly as possible in profitable loans. Oil-poor countries which were hurt most by petroleum price increases had the greatest need to borrow and thus received majority of these loans. Yet, such loans set the stage for a catastrophe. Without stringent monitoring, some of the loans given to countries were misused by kleptocratic government for their own corrupt interests instead of spending it for genuine improvement in welfare of the country, as seen in the case of Zaire, where the aid worth $1.3 billion was spent on white elephant projects, stolen and deposited in Western banks With such thoughtless lending of money to undeserving and corrupt governments, the debt of the third world began to rise sharply during the late 1970s, to the point where the third world countries could not keep up with the servicing of their debt and had to declare themselves bankrupt, leading to the onset of the third world debt crisis, a major turning point in the global economic development and impeding sustainable human development, security and political or economic stability. Clearly, it was a result of the economic boom following the oil crisis, that led to prosperous oil companies over-relaxing the conditions for lending, which eventually led to the disastrous piling up of debts. Therefore, while the debt crisis was a turning point itself, it is undeniable that it was essentially an indirect long-term consequence of the 1973 oil crisis, catalyzed by the economical impact of the event.
While it was argued previously that the 1973 oil crisis caused a slight shift in power away from the US, it must be noted that it still only signified the start of the breakdown of American hegemony, and that American dominance over the world economy did not break down completely right after the oil crisis. In fact, the US still dominated the global economy behind the scenes using the IMF and WB as its political tools, and made attempts in reasserting its leverage. With such signs of continuity of US dominance, the oil-crisis thus cannot be said to be a “turning point” in the development of global economy, as the leadership of the global economy was remained the same as how it was in the past(and even resurged in the 1990s),albeit shaken to some extent.
Since their establishment, the IMF and World Bank have served largely as political tools of the United States, following Washington's orders almost to the letter. Being the largest contributors for both IMF and World Bank, the US commands immense voting powers in these organizations, holding on to 17% and 16% of votes respectively. In the 1940s and 1950s, both IMF and the World Bank had been tools of US ideology, to alleviate post-war poverty amongst countries esp. Europe, that bred totalitarianism and communism which the US feared would spread to its spheres of influence. Even after the oil crisis, in the 1980s-90s, the political - the US still had the ability to use these international institutions to force developing countries, particularly emerging economies, to further open up till they fit into the US-centered global capitalist system. The superpower cracked the whip of so-called "Washington consensus", characterized by transparency, privatization and liberalization. While it may seem that the US had started to lose its significance in the world partly due to the 1973 oil crisis, truth has it that the US was really asserting itself from behind the scenes, through supranational institutions. Even though there were effects on US hegemony, it did not come about immediately as the US was still was able to retain its position in the global economy through the IMF and WB, thus refuting the statement that the oil crisis was a “turning point”.
On top of making use of such organizations to maintain political and economic dominance, the US itself also showed signs of asserting leverage after the 1973 oil crisis, implying that there was still continuity in dominance of the US, and that the oil crisis had minimal effects in changing this aspect of the global economy. In 1974, just a year after the oil crisis, the US came up with the 1974 Trade Act, which states that the US can redress any violation of US trade agreements, and retaliate against any foreign activity that restrict US trades. In 1981, it even insisted that Japan must put VRAs on automobile exports, an outright example of protectionist measures for self-interest. —this went on for a long span of 13 years before Japan retaliated and bypassed the VRAs, Given the fact that it was just a year after the oil crisis, and yet the US could still have the power to make impactful decisions that affected the global economy (in this case Japan) in the long-term, it clearly illustrates that US leadership had not waned throughout the years, and that the dominance of the US still prevailed.
Conclusive, in view of the above counter-arguments, it appears that the 1973 oil crisis was a turning point for the development of the global economy. Yet, upon closer examinations, the event was still not exactly a crucial period for the world, keeping in mind that there existed other more important events like the collapse of the Bretton Woods system, and that US dominance still remained, although weakening. Therefore, the oil crisis was a turning point for the development of the global economy only to a small extent.