January 10th, 2018
Effects of 1973 Oil Shock and 1979 Energy Crisis on South Africa’s Economy
Economic adversity around the world has in most cases been preceded by periods of dramatic increases in crude oil prices. Barsky & Kilian (2004) for instance note that among other factors oil price increases are notable for their contribution to recessions, prolonged inflation periods, decreased productivity and slowing down economic growth. Such perhaps is in relation to the importance that has been placed on oil as a source of energy in the modern industrial economies. Even though coal was the main driver during the industrial revolution, the subsequent discovery of oil has made it an increasingly employed source of energy globally with is 2001 share being estimated at 37 percent (International Energy Agency [IEA] 2005). Its uses as a source of energy have for instance been in electricity generation, cooking heating though fueling of transportation can probably be advanced to be what has lead its increasing popularity as an energy source.
The shift to oil however has not been without its share of problems. Its central role in energy provision and non-occurrence in all the countries has provided producers with a competitive advantage over non-producers. However it was not until the 1973 oil shocks that were characterized by the ‘Organization of Petroleum Exporting Countries’ [OPEC] Arab members’ embargo (Rose 2004; Van der Merwe & Meijer 1990) did the importance of oil in shaping global economies become apparent. Subsequently energy crises such as that of 1979 have also been fueled to a great extent by increasing oil prices (‘Oil squeeze’ 1979; Wakeford 2006; ‘Crude oil prices 1861-2006’ cited in: Fofana, Chitiga & Mabugu 2009). Recently, the 2007 banking crisis which also had escalating oil prices as one of its precursors (Wakeford 2006) has had far reaching adverse effects in many countries across the globe. A number of studies as reviewed by Brown and Yucel (2002) have also suggested an association between fluctuation in oil prices and economic activities in different countries. Such associations have not only been limited to countries that do not have alternative sources of energy but also for other countries such as South Africa whose major energy requirements were historically and presently continue to be provided by its abundant coal deposits (DME 2006). In this literature review the causes of the 1973 oil shock and energy crisis of 1979 and the effects of these on South Africa are evaluated.