Amidst President Donald Trump’s latest claims that the US “will be leaving [Iran] very soon”, oil prices are likely to remain elevated at about $100 per barrel, months after the war concludes.Since the US and Israel commenced their war against Iran a month ago, shipping activity has largely ceased via the narrow Strait of Hormuz. Thus, the Gulf nations, which typically export around 20% of the world’s oil, have been unable to do so.The present crisis has also drawn comparisons with the 1973 oil price shock, which saw Arab oil-producing nations impose a sweeping embargo on the West, causing oil prices to quadruple within months.The 1973 crisis removed about 4.5 million barrels per day (bpd) from global supply. In contrast, the ongoing closure of the Strait of Hormuz has blocked around 20 million bpd. Here is what to know.What happened in 1973?In 1973, the Arab members of the Organization of Petroleum Exporting Countries (OPEC) announced a trade embargo against countries that had supported Israel during the Yom Kippur War that year. These nations announced sharp production cuts and eventually banned the sale of oil to the US.This move marked the first drastic measure taken by the grouping, which, until then, had limited its interactions to coordinating production terms among its members.Also Read | Trump says war will be over in 3 weeks: Why oil is likely to stay elevated for far longerThere were two major reasons. The first and most immediate was to pressure the US, amidst the Yom Kippur War being waged at the time by a coalition of Arab countries led by Syria and Egypt against Israel, to reclaim territories they had lost during the 1967 Six-Day War. The US, under President Richard Nixon, provided $2.2 billion in emergency aid to Israel for the conflict known as the Yom Kippur War. Israel emerged as the victor in this war.Story continues below this adAnother crucial reason was a growing distrust of the US under Nixon, who had taken steps to boost the American economy to the detriment of the Arab nations. One of his more egregious actions, in their view, was the decoupling of the US Dollar from its gold peg and abandoning the gold standard altogether in 1971. This move and the subsequent devaluation of the dollar had a seismic effect on oil prices, which were priced in dollars. Thus, the revenues of oil-producing countries were significantly reduced.How did the 1973 trade embargo affect oil prices?Then-Federal Reserve chair Arthur Burns noted in 1974 that the oil price manipulation had come at “a most inopportune time”. He observed that wholesale prices of industrial commodities had been rising at over 10% annually in 1973, while the full use of industrial capacity, coupled with a shortage of several industrial components, exacerbated the problem.This, coupled with a lack of excess oil production capacity, made it difficult for the US to meet its immediate needs. OPEC nations had also expanded their share of the global oil market, giving the grouping greater leverage in price setting.By 1974, the price of a barrel of oil had quadrupled in the US.Story continues below this adFaced with a fuel shortage and its first major increase in oil prices since World War II, the US was forced to initiate fuel rationing and impose speed limits to reduce fuel use. Eventually, the US negotiated a deal with Saudi Arabia, the dominant OPEC member, the following year, in the wake of a 300% increase in oil prices. The kingdom priced its oil exports exclusively in dollars and committed to reinvesting its massive oil revenue surpluses in the US financial system, birthing what we know today as the ‘petrodollar’ arrangement.Also in Explained | Trump’s move to control Venezuelan oil supply might have a petrodollar angle. Here is howFollowing Saudi Arabia’s lead, most other major suppliers also priced oil in dollars. This meant that oil-importing countries, including India, were forced to continuously purchase dollars to buy crude. This petrodollar arrangement created unceasing demand for the dollar, helping boost Washington’s economic and strategic might.How was India affected by the 1973 oil embargo?While the oil embargo did not target India, it was in no way insulated from the shock. In an article in the May 2000 Strategic Analysis journal, Shebonti Ray Dadwal, researcher at the Manohar Parrikar Institute for Defence Studies and Analyses, recalled that while India had hoped for favourable treatment from the Arab nations, OPEC refused to adopt a dual pricing system. Given India’s heavy dependence on oil imports, its bill, which stood at $414 million in 1973, was set to rise to $1,350 million in 1974.Until then, India was riding a current account surplus, fuelled by export incentives and a devalued rupee pegged to a multi-currency basket with the pound sterling as intervention currency. The Union Ministry of Statistics and Project Implementation noted that this helped the rupee depreciate further against the dollar to become competitive. It was also accompanied by export incentives, as well as an uptick in remittances from Indian expats in West Asia, flush with petrodollar revenues, and contributed to the current account surplus in 1976-77 and 1977-78.Story continues below this adHowever, the domestic consequences proved far-reaching. The fourfold rise in oil prices fed an inflationary spiral, coupled with stagnation in real wages. The Centre’s move to seek aid from the World Bank, International Monetary Fund and donor countries proved controversial. Former Principal Secretary to Prime Minister Indira Gandhi, P N Dhar recalled that the promise of aid came with a demand to liberalise India’s controls and licensing to promote exports, as well as allowing large business houses to expand their production. This also entailed a freeze on wage increases and measures to restrain demand for the domestic supply of goods, measures that were viewed as anti-working-class. (“Indira Gandhi, The Emergency and The Indian Democracy”, P N Dhar, 2000)In May 1974, India witnessed its largest-ever railway strike, with nearly two million workers demanding higher wages commensurate with their living standards. While the protest ended in three weeks, the discontent lingered. Opposition leader Jayaprakash Narayan seized the opportunity and led a coalition of students, farmers and politicians to protest against the government in Bihar the same year. The protests paved the way for the Prime Minister’s decision to impose the Emergency on June 25, 1975, which lasted two years and transformed Indian politics as we know it.