Gas shortages in the 1970s
In the 1970s, the United States faced significant gas shortages and price spikes driven by a combination of geopolitical tensions and domestic energy policies. A growing dependency on foreign oil, particularly from the Middle East, coincided with rising tensions due to U.S. support for Israel during conflicts in the region, notably the Yom Kippur War in 1973. In response to U.S. backing of Israel, Arab oil-producing nations imposed an embargo, quadrupling crude oil prices and leading to dramatic increases in gasoline costs, which rose from about 40 cents to nearly 60 cents per gallon. This situation contributed to inflation rates reaching as high as 12 percent in subsequent years.
The energy crisis extended beyond oil; natural gas shortages emerged from 1976 to 1978 due to artificially low prices that discouraged production and exploration. The 1979 oil crisis further exacerbated the situation, with gas prices exceeding one dollar per gallon and prolonged lines at gas stations. The economic repercussions were severe, influencing consumer behavior towards more fuel-efficient vehicles and impacting the broader U.S. economy. However, after 1980, oil prices began to decline as OPEC dynamics changed and alternative sources were found, leading to a gradual stabilization of the market and a drop in prices below one dollar by 1986.
Gas shortages in the 1970s
Insufficient supplies of gas in 1973 because of oil price increases and subsequent inflation, as well as the shortages of natural gas between 1976 and 1978
U.S. gas shortages demonstrated the country’s reliance on Middle Eastern oil and caused a national crisis as many Americans voiced their anger at the high prices of natural gas and oil. The price hikes spurred Americans to look for alternative energies and caused the U.S. government to explore the possibility of domestic energy production.
The 1973 price spikes of oil in the United States were caused by two issues. First, throughout the period from 1950 to 1970, the United States had become increasingly dependent on foreign oil. Domestic oil production could not keep up with demand, and the United States started to import oil from other countries, including those in the Middle East. Second, the Arab Middle Eastern countries were angry with the United States. The Arab neighbors of Israel did not recognize Israel’s right to exist and were unhappy with the way that the United States supported Israel. In 1973, war once again erupted in the Middle East with the Yom Kippur War, and the United States played a vital role in backing Israel. The Arab Middle Eastern countries, angered over their inability to defeat Israel, decided to cut off the supply of oil to the United States and Europe.
This embargo lasted for five months and quadrupled the price of crude oil. The price of a gallon of gas rose from forty cents a gallon to nearly sixty cents, and in turn, this rise sparked inflation, which hit 9 percent in 1973 and 12 percent in 1974. After Jimmy Carter’s election to the American presidency in 1976, the economic situation stabilized for a time.
Natural Gas
Between 1976 and 1978, however, there were shortages of natural gas. The price of natural gas had been kept artificially low, which encouraged people to use it instead of petroleum for electricity production. Those using natural gas between 1958 to 1978 enjoyed the low prices, but the prices compromised substantial profits for the producers of natural gas. This fact subsequently discouraged companies from moving to the use of natural gas, and it discouraged current producers from finding new fields or processes for energy production. Therefore, demand far outstripped supply, and many schools and factories had to close. This was particularly evident in 1977, which had one of the coldest winters on record. The situation corrected itself somewhat by the end of 1978, with the help of legislation that called for stricter regulation of pricing.
Another Gas Shortage
The Organization of Petroleum Exporting Countries (OPEC) wanted to raise oil prices in 1979 and successfully did so. Gas prices passed one dollar a gallon in 1979, and there were long lines at gas stations and widespread fears of gas shortages. Gas prices remained high through 1980, and price increases in gasoline were passed along to the consumer. The high price of gasoline was $1.27 in 1979, which, in 2004 prices, would be $3.27.
The high prices caused inflation of more than 10 percent in 1979 and 1980. People began to buy more-fuel-efficient cars, often foreign produced, which, in turn, hurt American car companies. Moreover, the policies undertaken in order to limit inflation had negative effects. The Federal Reserve Board increased interest rates starting in 1979, and this move caused Americans to be less able to start businesses and buy homes, which further dampened the economic outlook. Interest rates on mortgages rose from 9 percent in 1978 to 18 percent in 1981.
Impact
The U.S. economy was hurt badly by the gas shortages and subsequent price increases during this era, but the relatively temporary nature of the increases precluded most Americans from turning to long-term changes in their use of energy—although many consumers did buy more fuel-efficient cars—or, for example, to long-term developments in mass transit by state and local governments.
Subsequent Events
After 1980, prices of oil began to drop again. Many members of OPEC were more interested in making money for themselves than in keeping OPEC strong. Therefore, many of the member countries pumped more than OPEC told them to, which drove down the price of oil. Furthermore, other short-term oil sources were found. With these developments, prices dropped from $1.27 in 1979 to under a dollar a gallon by 1986, and the trend continued generally downward until 1998. Interest in alternative fuels, which were difficult to develop, decreased as gas prices dropped.
Bibliography
Knopman, Debra S. Assessing Natural Gas and Oil Resources. Santa Monica, Calif.: Rand, 2003. This short treatise examines the amount of oil and natural gas left in the United States.
Skeet, Ian. OPEC: Twenty-five Years of Prices and Politics. Cambridge, England: Cambridge University Press, 1988. This short history of OPEC examines its interaction with world politics and the oil situation.
Tsai, Hui-Liang. Energy Shocks and the World Economy: Adjustment Policies and Problems. Westport, Conn.: Greenwood, 1989. Examines the way in which national economies adjust to external developments and discusses the energy crises of the 1970’s in depth.
Yergin, Daniel. The Prize: The Epic Quest for Oil, Money, and Power. New York: Simon & Schuster, 1991. Examines the race all over the world for oil production and its interaction with world politics, including the Gulf War of the early 1990’s.