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The evolution of foreign exchange rates in oil crises

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  1. Environmental taxes: Definition, inventory
    1. Context
    2. Goals
    3. Existing environmental taxes
    4. Implementation
  2. Environmental taxes: An effective tool?
    1. An effective tool under certain conditions
    2. Barriers
    3. Recommendations for future action

In October 1973, a war broke out between Israel and the Arabian countries (Yom Kippur War). In retaliation of US support for Israel and the Netherlands, the Arab members of the Organization of Petroleum Exporting Countries (OPEC) imposed an embargo on oil deliveries to both countries. Amid fears of a broader embargo, buyers built safety stocks thereby exerting pressure on prices. The OPEC countries also benefited from raising their prices. In March 1974, the price of oil was four times higher than before the war, going from $3 to $12 a barrel.

This price may seem low when compared to the current situation where the price of oil is about $60 a barrel, but the dollar is much lower today (between 1974 and 2006, the index of consumer prices in the United States used to be multiplied by 4) and the agents are not used to such prices. The increase in oil prices led to increased energy costs and this increase is also reflected in the prices of petroleum products other than energy, such as plastics. This caused an overall slowdown in consumption and investment, with the global economy plunging into a deep recession.

The current account balances of oil importing countries are deteriorating. But when in 1974 the world was entering a deep recession and unemployment was on the rise, inflation accelerated. This document presents macroeconomic data of the major industrialized regions between 1963 and 2005 and shows the magnitude of this inflation in the US, Europe and Japan between 1973 and 1982.

Tags: Evolution of foreign exchange rates in oil crises, Organization of Petroleum Exporting Countries (OPEC), Rise in oil prices

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