1979 energy crisis

Further information: 1979 world oil market chronology

1979 oil crisis
Graph of Top Oil Producing Counties, showing drop in Iran's Production
Other names	Second oil crisis
Date	1979 (1979) - 1980 (1980)

The 1979 (or second) oil crisis in the United States occurred in the wake of the Iranian Revolution. 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. When oil exports were later resumed under the new regime, they were inconsistent and at a lower volume, which pushed 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. However, a widespread panic resulted, added to by the decision of U.S. President Jimmy Carter to order the cessation of Iranian imports, driving the price far higher than would be expected under normal circumstances. In April of the same year, President Carter began a phased deregulation of oil prices. At the time, the average price of crude oil was $15.85 per barrel (42 US gallons (160 L)). Deregulating domestic oil price controls allowed U.S. oil output to rise sharply from the Prudhoe Bay fields, although oil imports fell sharply. Long lines once again appeared at gas stations and convenience stores, just as they did in 1973.

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 down to a 60 percent price drop in the 1990s. Oil exporters such as Mexico, Nigeria, and Venezuela expanded production ; USSR became the first world producer, and North Sea and Alaskan oil flooded onto the market.

Iran

See also: Iranian Revolution

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). 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 long time opposition leader himself), who sought to calm down the situation.

Effects

Other OPEC members

File:Opecrev.gif

OPEC net oil export revenues for 1971 - 2007.

The rise in oil price benefited other OPEC members, which made record profits.

United States

File:Line at a gas station, June 15, 1979.jpg

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, and the resulting shortages caused gas lines during the 1973 Oil Crisis. 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.) 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.

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.

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.

File:Gascoupon.png

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.

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 Pennsylvania, New York, New Jersey, and Texas. Coupons for gasoline rationing were printed but were never actually used during the 1979 crisis.

On July 15, 1979, President Jimmy Carter outlined his plans to reduce oil imports and improve energy efficiency in his "Crisis of Confidence" speech (sometimes known as the "malaise" speech). It is often said that during the speech, Carter wore a cardigan (he actually wore a blue suit) 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.

Carter's speech argued the oil crisis was "the moral equivalent of war". 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. 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. 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.

Oil patch

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.

Automobile fuel economy

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. 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. Nonetheless, overall fuel economy increased, which was one factor leading to the subsequent 1980s oil glut.

See also

• Energy crisis
• Iran hostage crisis
• 1967 Oil Embargo
• 1973 oil crisis
• 1970s Energy Crisis
• 1979 world oil market chronology
• 1980s oil glut
• 1990 spike in the price of oil
• 2000s energy crisis
• Hubbert peak theory

Further reading

• The Prize: The Epic Quest for Oil, Money, and Power,(1993), by Daniel Yergin, Simon & Schuster, ISBN 0-671-79932-0 & ISBN 0-671-50248-4

References

ar:أزمة الطاقة (1979)