What Was the 1979 Energy Crisis?
You need to know that the 1979 energy crisis was the second oil price shock in the 1970s, and it caused widespread panic over potential gasoline shortages along with much higher prices for crude oil and refined products. Oil output only fell by about 7% or less, but that short-term disruption spiked prices, triggered panic buying, and created long lines at gas stations.
Key Takeaways
- The 1979 energy crisis was one of two oil price shocks in the 1970s—the first happened in 1973.
- Higher prices and supply concerns drove panic buying in the gasoline market.
- Crude oil prices nearly doubled to almost $40 per barrel in just twelve months.
- This crisis pushed the development of smaller, more fuel-efficient vehicles.
- OPEC's market share dropped sharply, and utility companies shifted toward alternative energy sources.
Understanding the 1979 Energy Crisis
Let me walk you through this: the 1979 energy crisis followed the Iranian Revolution, which began in early 1978 and ended in early 1979 with the fall of Shah Mohammad Reza Pahlavi, Iran's monarch. Since Iran was a major oil exporter, the turmoil there cut global crude oil supply significantly, leading to shortages and a surge in panic buying—within 12 months, the price per barrel almost doubled to $39.50.
The disruptions in gasoline and diesel supply were especially bad in the spring and early summer of 1979. States like California, New York, Pennsylvania, Texas, and New Jersey started rationing gasoline, where you could only buy on alternate days based on whether your license plate ended in an even or odd number.
There were also worries about heating oil shortages for the 1979-1980 winter, which hit New England states hard since they relied heavily on it for home heating.
Special Considerations
Don't make the mistake of blaming it all on the Shah's fall. The U.S. suffered more from this crisis than European countries that also imported oil from Iran and the Middle East. Part of that came from U.S. fiscal policy decisions.
U.S. Fiscal Policy Also to Blame
Here's what happened: in early 1979, the U.S. government regulated oil prices, and regulators told refiners to cut gasoline supply initially to build inventories, which directly pushed pump prices higher.
Another issue was the Department of Energy's decision to force large refiners to sell crude to smaller ones short on supply. Since those smaller refiners couldn't produce much, this delayed gasoline availability even more.
Monetary policy contributed too—the Federal Open Market Committee hesitated to raise interest rates fast enough, which helped inflation rise late in the decade, along with higher prices for energy and other goods.
Benefits of the 1979 Energy Crisis
During the crisis, politicians urged you to conserve energy and cut unnecessary travel. In the years after, it led to more sales of compact and subcompact vehicles in the U.S., which had smaller engines and better fuel economy.
The crisis also pushed utility companies globally to look beyond crude oil for power generation, including nuclear plants, and governments invested billions in R&D for other fuel sources.
As a result, daily global oil consumption dropped over the next six years, and OPEC's market share fell to 29% in 1985 from 50% in 1979.
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