1979 energy crisis

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1979 oil crisis
Main oil-producing countries, 1960–2000
Graph of top oil-producing countries, showing drop in Iran's production [1]
Date 1979 (1979)–1980 (1980)
Also known as Second oil crisis

The 1979 (or second) oil crisis or oil shock occurred in the United States due to decreased oil output in the wake of the Iranian Revolution. Despite the fact that global oil supply decreased by only ~4%, widespread panic resulted, driving the price far higher than justified by supply. The price of crude oil rose to $39.50 per barrel over the next 12 months and long lines once again appeared at gas stations, as they had in the 1973 oil crisis.[2]

As with the 1973 crisis, global politics and power balance was impacted. OPEC lost influence. In 1980, following the outbreak of the Iran–Iraq War, oil production in Iran nearly stopped, and Iraq's oil production was severely cut as well. After 1980, oil prices began a 20-year decline, eventually reaching a 60 percent fall-off during the 1990s. Oil exporters such as Mexico, Nigeria, and Venezuela expanded production; the USSR became the top world producer; and North Sea and Alaskan oil flooded the market.

A 1980's US recession was triggered. Oil prices did not return to pre-crisis levels until the mid-80's.

Iran[edit]

Amid massive protests, the Shah of Iran, Mohammad Reza Pahlavi, fled his country in early 1979 and the Ayatollah Khomeini soon became the new leader of Iran. Protests severely disrupted the Iranian oil sector, with production being greatly curtailed and exports suspended. In November 1978, a strike by 37,000 workers at Iran's nationalized oil refineries initially reduced production from 6 million barrels (950,000 m3) per day to about 1.5 million barrels (240,000 m3).[3] Foreign workers (including skilled oil workers) fled the country. On January 16, 1979, Shah of Iran, Mohammad Reza Pahlavi and his wife left Iran at the behest of Prime Minister Shapour Bakhtiar (a longtime opposition leader himself), who sought to calm down the situation.[4]

Effects[edit]

Other OPEC members[edit]

OPEC net oil export revenues for 1971 - 2007.[5]

The rise in oil price benefited other OPEC members, which made record profits. When oil exports were later resumed under the new Iranian regime, they were inconsistent and at a lower volume, pushing prices up. Saudi Arabia and other OPEC nations, under the presidency of Dr. Mana Alotaiba increased production to offset the decline, and the overall loss in production was about 4 percent.[6]

OPEC failed to hold on to its preeminent position, and by 1981, its production was surpassed by that of other countries. Additionally, its own member nations were divided among themselves. Saudi Arabia, a "swing producer" trying to gain back market share, increased production and caused downward pressure on prices, making high-cost oil production facilities less profitable or even unprofitable.

United States[edit]

Line at a gas station in Maryland, USA, June 15, 1979.


The oil crisis had mixed effects in the United States, due to some parts of the country being oil-producing regions and other parts being oil-consuming regions. Richard Nixon had imposed price controls on domestic oil. Gasoline controls were repealed, but controls on domestic US oil remained.

The Jimmy Carter administration began a phased deregulation of oil prices on April 5, 1979, when the average price of crude oil was US$15.85 per barrel (42 US gallons (160 L)). Starting with the Iranian revolution, the price of crude oil rose to $39.50 per barrel over the next 12 months (its all time highest real price until March 7, 2008.)[7] Deregulating domestic oil price controls allowed domestic U.S. oil output to rise sharply from the large Prudhoe Bay fields, while oil imports fell sharply.

And although not directly related, the near-disaster at Three Mile Island on March 28, 1979, also increased anxiety about energy policy and availability.[8]

Due to memories of oil shortage in 1973, motorists soon began panic buying, and long lines appeared at gas stations, as they had six years earlier during the 1973 oil crisis.[9]

As the average vehicle of the time consumed between two to three liters (about 0.5-0.8 gallons) of gasoline (petrol) an hour while idling, it was estimated that Americans wasted up to 150,000 barrels (24,000 m3) of oil per day idling their engines in the lines at gas stations.[10]

Gas coupon printed but not issued during the 1979 energy crisis

During the period, many people believed the oil companies artificially created oil shortages to drive up prices, rather than factors beyond human control or the US' own price controls. The amount of oil sold in the United States in 1979 was only 3.5 percent less than the record set for oil sold the year previously.[11] A telephone poll of 1,600 American adults conducted by the Associated Press and NBC News and released in early May 1979 found that only 37% of Americans thought the energy shortages were real, 9% were not sure, and 54% thought the energy shortages were a hoax.[12]

Many politicians proposed gas rationing; one such proponent was Harry Hughes, Governor of Maryland, who proposed odd-even rationing (only people with an odd-numbered license plate could purchase gas on an odd-numbered day), as was used during the 1973 Oil Crisis. Several states actually implemented odd-even gas rationing, including California, Pennsylvania, New York, New Jersey, and Texas. Coupons for gasoline rationing were printed but were never actually used during the 1979 crisis.[13]

On July 15, 1979, President Carter outlined his plans to reduce oil imports and improve energy efficiency in his "Crisis of Confidence" speech (sometimes known as the "malaise" speech).[14] It is often said that during the speech, Carter wore a cardigan (he actually wore a blue suit) [15] and encouraged citizens to do what they could to reduce their use of energy. He had already installed solar hot water panels on the roof of the White House and a wood-burning stove in the living quarters. However, the panels were removed in 1986, reportedly for roof maintenance, during the administration of his successor, Ronald Reagan.[16]

Carter's speech argued the oil crisis was "the moral equivalent of war". Critics, then and now, argued that his varied proposals would make the situation worse, not better. [17]Several months later, in January 1980, Carter issued the Carter Doctrine, which declared that any interference with U.S. oil interests in the Persian Gulf would be considered an attack on the vital interests of the United States.[18] Additionally, as part of his administration's efforts at deregulation, Carter proposed removing price controls that had been imposed in the administration of Richard Nixon before the 1973 crisis. Carter agreed to remove price controls in phases; they were finally dismantled in 1981 under Reagan.[19] Carter also said he would impose a windfall profit tax on oil companies.[20] While the regulated price of domestic oil was kept to $6 a barrel, the world market price was $30.[20]

In 1980, the U.S. Government established the Synthetic Fuels Corporation to produce an alternative to imported fossil fuels.

Oil patch[edit]

When the price of West Texas Intermediate crude oil increased 250 percent between 1978 and 1980, the oil-producing areas of Texas, Oklahoma, Louisiana, Colorado, Wyoming, and Alaska began experiencing an economic boom and population inflows.[21]

Automobile fuel economy[edit]

At the same time, Detroit's then-Big Three automakers (Ford, Chrysler, GM) were marketing downsized full-sized automobiles like the Chevrolet Caprice, the Ford LTD Crown Victoria and the Dodge St. Regis which met the CAFE fuel economy mandates passed in 1978. Detroit's response to the growing popularity of imported compacts like the Toyota Corolla and the Volkswagen Rabbit were the Chevrolet Citation, and the Ford Fairmont; Ford replaced the Ford Pinto with the Ford Escort and Chrysler, on the verge of bankruptcy, introduced the Dodge Aries K. GM was having unfavorable market reactions to the Citation, and introduced the Chevrolet Corsica and Chevrolet Beretta in 1987 which did sell better. GM also replaced the Chevrolet Monza, introducing the 1982 Chevrolet Cavalier which was better received. Ford experienced a similar market rejection of the Fairmont, and introduced the front wheel drive Ford Tempo in 1984.

Detroit was not well prepared for the sudden rise in fuel prices, and imported brands were now more widely available in North America and had developed a loyal customer base. Many imported brands utilized fuel saving technologies such as fuel injection and multi-valve engines over the common use of carburetors. Also, the imported brands used their innovative business ethic e.g. a just-in-time inventory system but the U.S. Government imposed import quotas where the Japanese brands (later extended to South Korean and European marques) began outsourcing their operations by opening assembly plants in the United States (especially the Southern U.S. where import automakers were not on friendly terms with labor unions from the Rust Belt states) and Canada to produce their mass market automobiles and light trucks. Import brands also complied with local content laws where an import automobile must have a percentage of automotive components sourced from the United States, Canada, or Mexico (prior to the establishment of NAFTA). The import quota resulted in the Japanese automakers importing a limited amount of automobiles but to comply with the U.S. Government imposition of the 1981 Voluntary Export Restraints, the automakers established their respective luxury marques (Acura, Lexus, Infiniti) but run respectively by their parent manufacturers (Honda, Toyota, Nissan). GM's Cadillac division experimented with their V8-6-4 power plant (the ancestor of the modern-day Active Fuel Management and/or variable displacement), which was a market failure.[22] Nonetheless, overall fuel economy increased, which was one factor leading to the subsequent 1980s oil glut.

See also[edit]

Further reading[edit]

References[edit]

  1. ^ http://www.eia.doe.gov/emeu/aer/pdf/pages/sec11_10.pdf
  2. ^ 1970s: Education
  3. ^ "Another Crisis for the Shah". Time. 1978-11-13. Retrieved 2009-12-05. 
  4. ^ "1979: Shah of Iran flees into exile". BBC. 1979-01-16. Archived from the original on 29 October 2009. Retrieved 2009-12-05. 
  5. ^ "OPEC Revenues Fact Sheet Energy Data, Statistics and Analysis - Oil, Gas, Electricity, Coal". Archived from the original on 2009-05-06. Retrieved 2009-04-02. 
  6. ^ "Oil Squeeze". Time magazine. 1979-02-05. Archived from the original on 7 March 2008. Retrieved 27 January 2008. 
  7. ^ Mouawad, Jad (2008-03-08). "Oil Prices Pass Record Set in ’80s, but Then Recede". New York Time. Retrieved 2010-04-20. 
  8. ^ Timeline of the accident at Three Mile Island, The Patriot-News [Central Pennsylvania], March 22, 2009. This is only indirectly related, but is an additional source of anxiety about energy policy.
  9. ^ http://www.exponentialimprovement.com/cms/oilshock.shtml
  10. ^ J. Leggett, 2005, Half Gone: Oil, Gas, Hot Air and the Global Energy Crisis. page 150, lines 12-13.
  11. ^ Sowell, Thomas (2002-11-05). "Mondale's "experience"". Jewish World Review. Archived from the original on 6 October 2008. Retrieved 2008-11-07. 
  12. ^ Energy crisis still doubted by public, Free Lance-Star [Virginia], Evans Witt, Associated Press Writer, page 5, May 4, 1979.
  13. ^ "Rationing Coupons Shredded". New York Times. 1984-06-02. Retrieved 27 January 2008. 
  14. ^ Carter, Jimmy (1979-07-15). Crisis of Confidence. The Carter Center. Retrieved 27 July 2008. 
  15. ^ ""Crisis of Confidence" Speech (July 15, 1979) - Miller Center of Public Affairs". Archived from the original on 2009-07-21. Retrieved 2009-07-16. 
  16. ^ Wihbey, John (2008-11-11). Jimmy Carter's Solar Panels: A Lost History that Haunts Today. The Yale Forum on Climate Change & the Media. Retrieved 1 November 2009. 
  17. ^ Reisman, George. "Restoring Confidence in America's Future: A Free Market Solution to the Energy Crisis." (The Intellectual Activist, 1979).
  18. ^ Carter, Jimmy (1980-01-23). Third State of the Union Address. Jimmy Carter Presidential Library. Archived from the original on 7 August 2008. Retrieved 27 July 2008. 
  19. ^ "Executive Order 12287 -- Decontrol of Crude Oil and Refined Petroleum Products". 1981-01-28. Retrieved 27 January 2008. 
  20. ^ a b Thorndike, Joseph J. (2005-11-10). "Historical Perspective: The Windfall Profit Tax -- Career of a Concept". TaxHistory.org. Retrieved 2008-11-06. 
  21. ^ FDIC: FYI - U.S. Home Prices: Does Bust Always Follow Boom?
  22. ^ Truett, Richard (2006). "Smooth Transition". AutoWeek. Retrieved 2007-05-28.