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O ver the last few months, the financial media in Israel and around the world have devoted numerous column inches and substantial airtime to what has become known as the “Qaddafi effect.” After all, not even those who took no particular interest in the dramatic upheavals in the Arab world could avoid the economic ramifications of the civil war in which Libya has been embroiled since February of this year. Having produced, until recently, about 1.6 million barrels of crude oil every day—approximately 2 percent of global consumption—Libya had been among the leading exporters of this valuable resource. The chaos accompanying the ongoing battle between the eccentric tyrant’s army and the Western-backed rebel forces resulted in an immediate jump in oil prices, which in turn led to a rise in the prices of gasoline. 1 Qaddafi himself allegedly ordered the destruction of oil fields and refineries in Libyan territory, with the aim of denying his domestic enemies a potential income avenue and wreaking economic havoc on foreign countries that would dare challenge his reign. 2

The “Qaddafi effect” is a perfect example of the use of oil as an instrument of political and financial pressure. An earlier—and far more traumatic—example of this phenomenon was the oil embargo imposed on the U.S. for providing aid to Israel in the Yom Kippur War. As part of the embargo, which lasted from October 1973 through March 1974, Arab members of OPEC refused to sell oil to America and other “Israel-friendly” countries, including Holland, Portugal, South Africa, and Rhodesia. Nor were these sanctions the worst of it: By severely limiting oil production, the Arab countries ensured that oil prices quadrupled in just a few weeks—from $3 to a staggering $12 per barrel. Almost overnight, both the U.S. and Western Europe, long accustomed to importing mass quantities of inexpensive crude oil, faced a new reality for which they were woefully unprepared.

This calculated move on the part of Arab oil exporters had a dramatic impact: The Nixon administration was forced to implement a series of emergency measures designed to minimize American oil consumption, including a decrease in work hours, an extension of daylight savings time, a lowering of speed limits, and a restriction of gas-station activity. On the flipside, to avoid being caught off guard again, the Americans also launched a comprehensive program to promote domestic energy independence. Japan and the Western European countries, for their part, began to hoard oil, while simultaneously adopting a more deferential stance toward the Arab position. The message had been heard loud and clear: Support for Israel is not financially advantageous.

Following the diplomatic efforts of the Americans and their intense pressure on Israel to withdraw its forces from territories conquered in Sinai and the Golan Heights, the oil embargo was lifted after a relatively short period of time. The damage it caused was long-lasting, however. The West faced the worst recession it had known since the 1930s, oil prices remained high for almost a decade, and, worst of all, the Arab members of OPEC realized they had at their fingertips a remarkably effective weapon. 3 In time, American president Jimmy Carter would declare that the energy crisis of the seventies was the “moral equivalent of war.” 4