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The 1979 oil crisis, also known as the 1979 Oil Shock or Second Oil Crisis, was an
energy crisis An energy crisis or energy shortage is any significant bottleneck in the supply of energy resources to an economy. In literature, it often refers to one of the energy sources used at a certain time and place, in particular, those that supply n ...
caused by a drop in
oil production Petroleum is a fossil fuel that can be drawn from beneath the earth's surface. Reservoirs of petroleum was formed through the mixture of plants, algae, and sediments in shallow seas under high pressure. Petroleum is mostly recovered from oil dri ...
in the wake of the Iranian Revolution. Although the global oil supply only decreased by approximately four percent, the oil markets' reaction raised the price of crude oil drastically over the next 12 months, more than doubling it to . The sudden increase in price was connected with fuel shortages and long lines at gas stations similar to the 1973 oil crisis. In 1980, following the onset of the Iran–Iraq War, oil production in Iran fell drastically. Iraq's oil production also dropped significantly, triggering economic recessions worldwide. Oil prices did not return to pre-crisis levels until the mid-1980s. Oil prices after 1980 began a steady decline over the next 20 years, except for a brief uptick during the Gulf War, which then reached a 60% fall-off in the 1990s. Mexico, Nigeria, and Venezuela's major oil exporters expanded their production during this time. The Soviet Union became the largest oil producer in the world, and oil from the North Sea and
Alaska Alaska ( ; russian: Аляска, Alyaska; ale, Alax̂sxax̂; ; ems, Alas'kaaq; Yup'ik: ''Alaskaq''; tli, Anáaski) is a state located in the Western United States on the northwest extremity of North America. A semi-exclave of the U.S., ...
flooded the market.


Iran

In November 1978, a strike consisting of 37,000 workers at Iran's nationalized oil refineries reduced production from per day to about .
Foreign worker Foreign workers or guest workers are people who work in a country other than one of which they are a citizen. Some foreign workers use a guest worker program in a country with more preferred job prospects than in their home country. Guest worker ...
s left the country. However, by bringing navy personnel into crude oil production operations, the government fixed short-term disruptions and by end of November the output came back to almost normal level. On January 16, 1979, the Shah of Iran, Mohammad Reza Pahlavi, and his wife,
Farah Pahlavi Farah Pahlavi ( fa, فرح پهلوی, née Farah Diba ( fa, فرح دیبا, label=none); born 14 October 1938) is the widow of the last Shah of Iran, Mohammad Reza Pahlavi, and was successively Queen and Empress (''Shahbanu'') of Iran from 1 ...
, left Iran at the behest of Prime Minister
Shapour Bakhtiar Shapour Bakhtiar ( fa, شاپور بختیار, ; 26 June 19146 August 1991) was an Iranian politician who served as the last Prime Minister of Iran under the Mohammad Reza Shah Pahlavi. In the words of historian Abbas Milani: "more than once in ...
, who sought to calm the situation. After the departure of the Shah,
Ayatollah Ayatollah ( ; fa, آیت‌الله, āyatollāh) is an honorific title for high-ranking Twelver Shia clergy in Iran and Iraq that came into widespread usage in the 20th century. Etymology The title is originally derived from Arabic word pr ...
Khomeini became the new leader of Iran.


Effects


Other OPEC members

The rise in oil prices benefited a few members of the Organization of Petroleum-Exporting Countries ( OPEC), which made record profits. Under the new Iranian government, oil exports later resumed but production was inconsistent and at a lower volume, further raising prices. Saudi Arabia and other OPEC nations, under the presidency of Mana Al Otaiba, increased production to offset most of the decline, and by early 1979 the overall loss in worldwide production was roughly four percent. The war between Iran and Iraq in 1980 caused a further 7 percent drop in worldwide production and OPEC production was surpassed by other exporters such as the United States as its member nations were divided amongst themselves. Saudi Arabia, a " swing producer", tried to gain back the market share after 1985, increasing production and causing downward pressure on prices, making high-cost oil production facilities less profitable.


United States

The oil crisis had a mixed impact on the United States. Some regions of the country are oil-producing regions, and other regions are oil-consuming. Richard Nixon imposed
price controls Price controls are restrictions set in place and enforced by governments, on the prices that can be charged for goods and services in a market. The intent behind implementing such controls can stem from the desire to maintain affordability of good ...
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. Starting with the Iranian revolution, the price of crude oil rose to over the next 12 months (its all-time highest
real price In economics, nominal value is measured in terms of money, whereas real value is measured against goods or services. A real value is one which has been adjusted for inflation, enabling comparison of quantities as if the prices of goods had not ...
until March 3, 2008). 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. Due to memories of the oil shortage in 1973, motorists soon began panic buying, and long lines appeared at gas stations, as they had six years earlier. The average vehicle of the time consumed between two and three liters (about 0.5–0.8 gallons) of gasoline an hour while idling, and it was estimated that Americans wasted up to of oil per day idling their engines in the lines at gas stations. 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 previous year. 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 percent of Americans thought the energy shortages were real, nine percent were not sure, and 54 percent thought the energy shortages were a hoax. Many politicians proposed gas rationing. One such proponent was
Harry Hughes Harry Roe Hughes (November 13, 1926 – March 13, 2019) was an American politician from the Democratic Party who served as the 57th Governor of Maryland from 1979 to 1987. Early life and family Hughes was born in Easton, Maryland, the so ...
,
Governor of Maryland The Governor of the State of Maryland is the head of government of Maryland, and is the commander-in-chief of the state's National Guard units. The Governor is the highest-ranking official in the state and has a broad range of appointive powers ...
, 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 implemented odd-even gas rationing, including California, Pennsylvania,
New York New York most commonly refers to: * New York City, the most populous city in the United States, located in the state of New York * New York (state), a state in the northeastern United States New York may also refer to: Film and television * ...
, New Jersey, Oregon, and Texas. Coupons for gasoline rationing were printed but were never actually used during the 1979 crisis. 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). In the speech, Carter encouraged citizens to do what they could to reduce their use of energy. He had already installed water tank heating solar 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. Carter's speech argued the oil crisis was "the moral equivalent of war". In November 1979, Iranian revolutionaries seized the American Embassy, and Carter imposed an embargo on Iranian oil. 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." Additionally, as part of his administration's efforts at deregulation, Carter proposed removing price controls that had been imposed by the Richard Nixon administration before the 1973 crisis. Carter agreed to remove price controls in phases. They were finally dismantled in 1981 under Reagan. Carter also said he would impose a windfall profit tax on oil companies. While the regulated price of domestic oil was kept to $6 a barrel, the world market price was $30. 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 West Texas Intermediate (WTI) is a grade or mix of crude oil; the term is also used to refer to the spot price, the futures price, or assessed price for that oil. In colloquial usage, WTI usually refers to the WTI Crude Oil futures contract t ...
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. 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.


Other oil-consuming nations

In response to the high oil prices of the 1970s, industrial nations took steps to reduce their dependence on the Organization of Petroleum-Exporting Countries (OPEC) oil. Electric utilities worldwide switched from oil to coal, natural gas, or nuclear power. National governments initiated multibillion-dollar research programs to develop alternatives to oil and commercial exploration developed major non-OPEC oilfields in Siberia, Alaska, North Sea, and the Gulf of Mexico. By 1986, daily worldwide demand for oil dropped by 5 million barrels but, non-OPEC production rose by an even-larger amount. Consequently, OPEC's market share reduced from 50 percent in 1979 to 29 percent in 1985.


Automobile fuel economy

At the time, Detroit's "Big Three" automakers (
Ford Ford commonly refers to: * Ford Motor Company, an automobile manufacturer founded by Henry Ford * Ford (crossing), a shallow crossing on a river Ford may also refer to: Ford Motor Company * Henry Ford, founder of the Ford Motor Company * Ford F ...
,
Chrysler Stellantis North America (officially FCA US and formerly Chrysler ()) is one of the " Big Three" automobile manufacturers in the United States, headquartered in Auburn Hills, Michigan. It is the American subsidiary of the multinational automotiv ...
, GM) were marketing downsized full-sized automobiles like the
Chevrolet Caprice The Chevrolet Caprice is a full-sized automobile produced by Chevrolet in North America for the 1965 to 1996 model years. Full-size Chevrolet sales peaked in 1965 with over a million sold. It was the most popular car in the U.S. in the 1960 ...
, the
Ford LTD Crown Victoria The Ford LTD Crown Victoria is a line of full-size cars that was manufactured and marketed by Ford from the 1980 to 1991 model years. Deriving its name from the Ford Fairlane coupe of 1955–1956, the LTD Crown Victoria served as the flagship ...
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 The Volkswagen Golf () is a compact car/small family car (C-segment) produced by the German automotive manufacturer Volkswagen since 1974, marketed worldwide across eight generations, in various body configurations and under various nameplates ...
was the
Chevrolet Citation The Chevrolet Citation is a range of compact cars that was produced by the Chevrolet division of General Motors. The first Chevrolet sold with front-wheel drive, a single generation of the Citation was sold from the 1980 to 1985 model years. The s ...
and the
Ford Fairmont The Ford Fairmont is a model line of compact cars that was manufactured by Ford from the 1978 to 1983 model years. The successor of the Ford Maverick, the Fairmont marked the third generation of compact sedans sold by Ford in North America and ...
. Ford replaced the Ford Pinto with the Ford Escort and Chrysler, on the verge of
bankruptcy Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debto ...
, 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 sold better. GM also replaced the
Chevrolet Monza The Chevrolet Monza is a subcompact automobile produced by Chevrolet for the 1975 through 1980 model years. The Monza is based on the Chevrolet Vega, sharing its wheelbase, width, and standard inline-four engine. The car was designed to accommoda ...
, introducing the 1982
Chevrolet Cavalier The Chevrolet Cavalier is a line of compact cars produced by Chevrolet. Serving as the replacement of the Chevrolet Monza, the Cavalier was the second Chevrolet model line to adopt front-wheel drive. Three versions of the Cavalier have been so ...
which was better received. Ford experienced a similar market rejection of the Fairmont and introduced the front-wheel-drive
Ford Tempo The Ford Tempo and its Mercury counterpart the Topaz, are compact cars produced by the Ford Motor Company for model years 1984 to 1994. They were the downsized successors to the Ford Fairmont and Mercury Zephyr respectively. The Tempo and Topa ...
in 1984. Detroit was not well prepared for the sudden rise in fuel prices, and imported brands (primarily the Asian models, which were mass-marketed and had a lower manufacturing cost as opposed to
British British may refer to: Peoples, culture, and language * British people, nationals or natives of the United Kingdom, British Overseas Territories, and Crown Dependencies. ** Britishness, the British identity and common culture * British English, ...
and West German brands). Moreover, the rising value of the Deutsche mark and British pound resulted in the transition to the rise of Japanese manufacturers as they were able to export their product from Japan at a lower cost, resulting in profitable gains (despite accusations of
price dumping Predatory pricing is a pricing strategy, using the method of undercutting on a larger scale, where a dominant firm in an industry will deliberately reduce the prices of a product or service to loss-making levels in the short-term. The aim is tha ...
), and 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. Indeed, the share of Japanese cars in U.S. auto purchases rose from 9 percent in 1976 to 21 percent in 1980. Japanese exports would later displace the automotive market once dominated by lower-tier European manufacturers ( Renault, Fiat,
Opel Opel Automobile GmbH (), usually shortened to Opel, is a German automobile manufacturer which has been a subsidiary of Stellantis since 16 January 2021. It was owned by the American automaker General Motors from 1929 until 2017 and the PSA Grou ...
,
Peugeot Peugeot (, , ) is a French brand of automobiles owned by Stellantis. The family business that preceded the current Peugeot companies was founded in 1810, with a steel foundry that soon started making hand tools and kitchen equipment, and then ...
, 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 Fuel injection is the introduction of fuel in an internal combustion engine, most commonly automotive engines, by the means of an injector. This article focuses on fuel injection in reciprocating piston and Wankel rotary engines. All comp ...
and multi-valve engines over the common use of
carburetors A carburetor (also spelled carburettor) is a device used by an internal combustion engine to control and mix air and fuel entering the engine. The primary method of adding fuel to the intake air is through the venturi tube in the main meterin ...
. The overall fuel economy of cars in the United States increased from about 15 miles per gallon (mpg) in 1979 to 18 mpg by 1985 and 20 mpg by 1990. This was one factor leading to the subsequent
1980s oil glut The 1980s oil glut was a serious surplus of crude oil caused by falling demand following the 1970s energy crisis. The world price of oil had peaked in 1980 at over US$35 per barrel (equivalent to $ per barrel in dollars, when adjusted for in ...
.


See also

*
Energy crisis An energy crisis or energy shortage is any significant bottleneck in the supply of energy resources to an economy. In literature, it often refers to one of the energy sources used at a certain time and place, in particular, those that supply n ...
*
Energy diplomacy Energy diplomacy is a form of diplomacy, and a subfield of international relations. It is closely related to its principal, foreign policy, and to overall national security, specifically energy security. Energy diplomacy began in the first half of t ...
* Iran hostage crisis * 1979 world oil market chronology *
1980s oil glut The 1980s oil glut was a serious surplus of crude oil caused by falling demand following the 1970s energy crisis. The world price of oil had peaked in 1980 at over US$35 per barrel (equivalent to $ per barrel in dollars, when adjusted for in ...
*
2000s energy crisis From the mid-1980s to September 2003, the inflation-adjusted price of a barrel of crude oil on NYMEX was generally under US$25/barrel in 2008 dollars. During 2003, the price rose above $30, reached $60 by 11 August 2005, and peaked at $147. ...
*
Hubbert peak theory The Hubbert peak theory says that for any given geographical area, from an individual oil-producing region to the planet as a whole, the rate of petroleum production tends to follow a bell-shaped curve. It is one of the primary theories on peak ...
* Carless days in New Zealand


References


Further reading

* * Lesch, David W. ''1979: The Year That Shaped The Modern Middle East'' (2001
excerpt
* Odell, Peter R. ''Oil and gas: crises and controversies 1961-2000'' (2001
online
* Odell, Peter R. ''Oil and world power : background to the oil crisis'' (1974
online
* Painter, David S. (2014) "Oil and geopolitics: The oil crises of the 1970s and the cold war." ''Historical Social Research/Historische Sozialforschung'' (2014): 186–208.
online
* Randall, Stephen J. ''United States foreign oil policy since World War I: For profits and security'' (Montreal: McGill-Queen's Press-MQUP, 2005). * {{DEFAULTSORT:1979 Energy Crisis
Energy crisis An energy crisis or energy shortage is any significant bottleneck in the supply of energy resources to an economy. In literature, it often refers to one of the energy sources used at a certain time and place, in particular, those that supply n ...
Energy crises History of the petroleum industry Petroleum politics Petroleum economics Presidency of Jimmy Carter
Energy crisis An energy crisis or energy shortage is any significant bottleneck in the supply of energy resources to an economy. In literature, it often refers to one of the energy sources used at a certain time and place, in particular, those that supply n ...
Embargoes Iranian Revolution