The 1973 Oil Crisis and Its Effects

An American gas station in 1973, with a long line of cars. An American gas station in 1973, with a long line of cars. (click for source)

Before 1973, gas prices in the United States were stable for decades. Through The Great Depression, World War II, and the postwar boom, oil traded in a low and narrow range. Many neighborhoods, companies, and sectors of the economy grew dependent on these prices. When a sudden shock occurred, it threw the United States into a state of chaos. Gas shortages proliferated, inflation and unemployment spiked, and the stock market crashed by nearly 50%. Caused by an oil embargo, led my many member nations of OPEC, this event became known as the 1973 Oil Crisis. Today, the United States has national mileage standards, the Department of Energy, and the Strategic Petroleum Reserve in large part because of this crisis.

Like many things related to oil, the 1973 Oil Crisis emerged from an interplay of forces in the Middle East. The United States supported Israel, and Israel was attacked from two sides on October 6 in what became known as the Yom Kippur War. Egyptian troops attempted to take the Sinai Peninsula while Syrian troops moved into the Golan Heights. Within the week the United States was deploying significant military aid to Israel. By October 20th, several countries in the Middle East had imposed a complete embargo of oil shipments to the United States. In short order, the price of oil quadrupled.

The U.S. was very ill-prepared for such an event. Most cars of the era were enormous, four-door sedans. The average gas mileage for a car was around 13 miles per gallon. Using gas for home heating was commonplace. Domestic production had topped out in 1970 was beginning a long-term decline (this was one of the factors that gave foreign producers such leverage in the first place). When foreign imports were interrupted, it took very little time for shortages to break out. Cars waited in long lines, or were met with "NO GAS" signs. Rationing systems (such as the "odd-even" license plate scheme) were implemented, and President Nixon appealed to Americans' voluntary sacrifice to help the situation.

By early 1974 the furor over Israel had decreased somewhat and the embargo ended on March 17. While oil prices stabilized, they never went as low as they had been before 1973. The consequences were myriad. First of all, the economy was unprepared for higher prices and struggled with them through the rest of the 1970s. Inflation was a consistent economic ill throughout the Administrations of Richard Nixon, Gerald Ford, and Jimmy Carter. Several times it topped out above 10% annually. There was also a harsh recession from 1973-75 that was made worse by the oil shock. All of this contributed to a general increase in pessimism that was aimed at successive Presidents and leaders.

The United States did several things to prevent a recurrence of the 1973 oil shock. A national speed limit of 55mph was imposed. Gas mileage standards on cars were put in place under Gerald Ford. The Strategic Petroleum Reserve was established in 1975, and it holds hundreds of millions of barrels of petroleum, intended for use in an energy crisis to mitigate the effects of lost supply. It has been tapped for small amounts on several occasions. The Trans-Alaska Pipeline was built between 1974 and 1977, and transports oil from the Arctic Coast. Closer relationships were cultivated with certain countries, such as Saudi Arabia, to manage the political situation overseas and prevent future supply disruptions (with a huge failure in Iran, in this regard, that led to another price shock in 1979). Finally, the Department of Energy was created in 1977 to oversee some of these measures, and to manage energy and nuclear programs in general. And in the private economy, in spite of continued high usage, the United States is much more efficient with oil than it was in 1973. By one EIA estimate, the amount of oil consumed per dollar of economic activity has declined by over half.

Spread the Word

comments powered by Disqus