On September 14, 1960, the Organization of the Petroleum Exporting Countries (OPEC) was founded at a conference in Baghdad, Iraq. Thirteen countries including Iran, seven Arab countries, Indonesia, Angola, Nigeria, Ecuador and Venezuela joined the group with the goal of creating a neutral bargaining unit for Third World oil producing countries. At the time, these countries were facing pressure from oil companies to lower prices and had little leverage individually.
Initially OPEC simply sought to increase the share of oil revenues given to the oil producing countries and to increase their control over the supply of oil. By the start of the next decade, OPEC had become a unified force and was gaining influence over world oil supply and price.
In May, 1967 Egypt expelled United Nations forces from the Sinai region separating Egyptian and Israeli territory. Israel, threatened by the presence of Egyptian forces on their border, called up reservists in preparation for armed conflict. On June 5, 1967, Israel attacked the Egyptian forces. Jordan and Syria joined Egypt in the struggle against Israel. The war lasted from June 5 to June 10, 1967 and is called the Six-Day War. Israel won a decisive victory and tripled its size by taking control of the Sinai Peninsula, the Gaza Strip, the West Bank of the Jordan River including East Jerusalem, and the Golan Heights.
Four years later, in a seemingly unrelated event, the United States and several other countries decided in 1971 to discontinue using gold as a standard for the value of their currencies. This led directly to depreciation of the value of the dollar and other currencies that oil producing nations were receiving for their goods.
The new currency valuation system had an adverse effect on the purchasing power of Third World oil producing countries. Change in the value of currencies was accompanied by price increases in goods sold to these countries from the major oil consumers (goods such as wheat, grain, sugar, cement, even refined petroleum products) while the price of oil remained the same. Oil producing countries, including the members of OPEC, were receiving less real income for their exported oil at the same time that they were paying higher prices for the goods they purchased. Members of OPEC decided to begin pricing oil against the value of gold instead of the value of the dollar. The result was the first stage of the "oil shock” felt in the U. S. and throughout the world as oil prices suddenly increased.
Meanwhile, in the Middle East, tensions remained high as Arab nations viewed the existence of the Israeli state as an affront to the region. The Egyptians and Syrians, beaten in the Six-Day War, sought to recover the land they had lost as well as to defend their national honor after the humiliation suffered in the defeat in 1967. On October 6, 1973, on the Jewish holiday of Yom Kippur, Egypt and Syria attacked Israel in what became known as the Yom Kippur War.
Israel’s closest ally, the United States, expected the war to be shortlived based on the length of previous wars, but the Egyptians and Syrians were receiving assistance from Arab allies and support from the U. S.S. R. In the first 24-48 hours of the war, the attacking nations made positive advances, but shortly thereafter momentum began to shift to the defending Israelis, although losses were unexpectedly high.
Concerned that Israel was suffering significant losses, United States Secretary of State Henry Kissinger and President Richard Nixon initiated Operation Nickel Grass, an airlift operation designed to bring supplies to Israel to help in the war. There were also reports that the United States had flown reconnaissance missions over Egypt to provide intelligence to Israel about Egyptian military movements and placements in preparation for an Israeli counterattack, launched on October 14, 1973.
The United States’ involvement in the Yom Kippur War would turn out to have enormous implications. Virtually the entire Arab world considered Israel an adversary and sought its destruction. On September 1, 1967, at the Khartoum Arab Summit, participating Arab nations signed the Khartoum Resolution which included the infamous "three no’s”: no peace with Israel, no recognition of Israel, and no negotiation with Israel. By supporting Israel in the war, the U. S. not only enraged Egypt and Syria, but the entire Arab world. The final straw came on October 17 when President Nixon requested $2.2 billion in emergency aid from Congress for Israel. Two days later, on October 19, 1973, thirteen days after the start of the Yom Kippur war, Libya initiated an oil embargo against the United States and the rest of the Arab nations followed suit.