1979 oil crisis

Fluctuations of OPEC net oil export revenues since 1972[5][6]

The rise in oil price benefited other OPEC members, which made record profits. When oil exports were later resumed under the new Iranian government, they were inconsistent and at a lower volume, pushing the prices up. Saudi Arabia and other OPEC nations, under the presidency of Mana Al Otaiba, increased production to offset most of the decline, and in early 1979 the overall loss in worldwide production was about 4 percent.[7]

OPEC failed to hold on to its prominent position, especially after Iran and Iraq went to war in 1980 and caused a further 10% drop in worldwide production – and by 1981, OPEC production was surpassed by other exporters like the USA. Additionally, its own member nations were divided among themselves. Saudi Arabia, a "swing producer" trying to gain back market share after 1985, increased production and caused downward pressure on prices, making high-cost oil production facilities less profitable or even unprofitable.

Line at a gas station in Maryland, United States, 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 Gasoline controls were repealed, but controls on domestic US oil remained.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 3, 2008.)[8] Deregulating domestic oil price controls allowed U.S. oil output to rise sharply from the large Prudhoe Bay fields, while oil imports fell sharply.

Although not directly related, the near-disaster at Three Mile Island on March 28, 1979, also increased anxiety about energy policy and availability.[9]

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.[10]

As the average vehicle of the time consumed between two and 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.[11]

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's 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.[12] 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.[13]

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, Oregon, and Texas. Coupons for gasoline rationing were printed but were never actually used during the 1979 crisis.[14]

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).[15] It is often said that during the speech, Carter wore a cardigan (he actually wore a blue suit) [16] 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.[17]

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.[18] In November 1979, Iranian revolutionaries seized the American Embassy, and Carter imposed an embargo against Iranian oil.[19] In January 1980, he issued the Carter Doctrine, declaring: "An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States."[20] Additionally, as part of his administration's efforts at deregulation, Carter proposed removing price controls that had been imposed by 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.[21] Carter also said he would impose a windfall profit tax on oil companies.[22] While the regulated price of domestic oil was kept to $6 a barrel, the world market price was $30.[22]

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

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.[23]

According to one study, individuals who were between the ages of 15 and 18 during the 1979 oil crisis were substantially less likely to use cars once they were in their mid-30s.[24]

In response to the high oil prices of the 1970s, industrial nations took steps to reduce their dependence on OPEC oil.[8] Electric utilities worldwide switched from oil to coal, natural gas, or nuclear power;[25] national governments initiated multibillion-dollar research programs to develop alternatives to oil;[26][27] and commercial exploration developed major non-OPEC oilfields in Siberia, Alaska, North Sea, and Gulf of Mexico.[28] By 1986, daily worldwide demand for oil dropped by 5 million barrels, non-OPEC production rose by an even-larger amount,[29] and OPEC's market share sank from 50% in 1979 to just 29% in 1985.[30]

At the time, Detroit's "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 (primarily the Asian marques which were mass marketed and had a lower manufacturing cost as opposed to British and West German brands - the rising value of the Deutsche Mark and English Pound resulted in the transition to the rise of Japanese manufacturers where exporting their product from Japan at a lower cost would yield profitable gains despite accusations of price dumping) were now more widely available in North America and developing a loyal customer base.

A year after the 1979 Iranian Revolution, Japanese manufacturers surpassed Detroit's production totals becoming first in the world. Japanese exports would later displace the automotive market once dominated by lower tier European manufacturers (Alfa Romeo, Fiat, Opel, Peugeot, MG, Triumph, Citroen). Some would declare bankruptcy (e.g. Triumph, Simca) or withdraw from the U.S. market, especially in the wake of grey market automobiles or the inability of the vehicle to meet DOT requirements (from emission requirements to automotive lighting). Many imported brands utilized fuel saving technologies such as fuel injection and multi-valve engines over the common use of carburetors. [31] Nonetheless, overall fuel economy increased, which was one factor leading to the subsequent 1980s oil glut.