The impacts of the 1973 and 1979 oil crisis on Central and Eastern European countries

Abstract

The 1973 and 1979 oil crisis had profound impacts on the global economy. As a result of the Yom Kippur War in October of 1973, world oil prices quintupled between 1973 and 1974. The crisis was structural in its nature and led to the end of postwar prosperity in Europe. In Western Europe and the United States, economic slowdown was coupled with persistently high inflation and rising unemployment rates. The situation of the world economy was further exacerbated by the collapse of the Bretton Woods system in 1971, which had widespread negative consequences. Additionally, the 1979 Iranian Revolution resulted in another “oil crisis” and caused a severe recession. Despite the harsh propaganda, based on Marxist-Leninist ideology, the Soviet bloc had to face a permanent economic crisis from the mid-1970s. The socialist countries postponed the introduction of structural reforms in their national economies and preserved their obsolete production and export sectors. Due to the lack of adjustment to the changed circumstances in the world economy, the structural crisis became deeper and prolonged more in Central and Eastern Europe than in the West. This paper aims to highlight the impacts of fundamental changes brought by the oil crisis on the socialist countries. It also evaluates the main reasons of economic slowdown and growing indebtedness of the region.