1979 oil crisis
The 1979 oil crisis was more than just a momentary spike in gas prices; it was a profound economic and geopolitical earthquake, triggered by the Iranian Revolution, that sent tremors around the globe. While the actual dip in global oil supply seemed minor, the market's reaction and subsequent events reshaped industries, changed consumer behavior, and redefined international energy policy. This pivotal moment didn't just impact how we fuel our cars—it fundamentally altered the fabric of modern society. A relatively small disruption in oil supply from Iran, coupled with panic and deregulation, caused crude oil prices to more than double globally. The crisis exposed vulnerabilities in Western economies, driving a worldwide shift towards energy independence and diversification away from oil. It permanently altered the global automotive industry, accelerating the dominance of fuel-efficient vehicles and Japanese manufacturers.
AI Summary
The 1979 oil crisis was more than just a momentary spike in gas prices; it was a profound economic and geopolitical earthquake, triggered by the Iranian Revolution, that sent tremors around the globe. While the actual dip in global oil supply seemed minor, the market's reaction and subsequent events reshaped industries, changed consumer behavior, and redefined international energy policy. This pivotal moment didn't just impact how we fuel our cars—it fundamentally altered the fabric of modern society.
- A relatively small disruption in oil supply from Iran, coupled with panic and deregulation, caused crude oil prices to more than double globally.
- The crisis exposed vulnerabilities in Western economies, driving a worldwide shift towards energy independence and diversification away from oil.
- It permanently altered the global automotive industry, accelerating the dominance of fuel-efficient vehicles and Japanese manufacturers.
The Unsettling Echoes of a Revolution
In 1979, the world watched as a political earthquake in Iran sent economic shockwaves globally. What began as a mere 4 percent drop in worldwide oil production—triggered by the tumultuous Iranian Revolution—sparked an energy crisis that profoundly reshaped the world economy and our daily lives.
Even though the actual oil supply decrease was relatively modest, the market's reaction was anything but. Crude oil prices more than doubled in just 12 months, rocketing from roughly $15 to nearly $40 a barrel. This sudden surge led to widespread fuel shortages and panic, eerily reminiscent of the 1973 oil crisis.
Iran's Internal Turmoil
The root of this upheaval lay in Iran. In November 1978, a massive strike by 37,000 oil workers brought the nation's production crashing down from a staggering 6 million to 1.5 million barrels per day. The mass departure of foreign workers only worsened the situation, though the government managed some short-term fixes.
The political landscape of Iran was irrevocably altered on January 16, 1979, when Shah Mohammad Reza Pahlavi left the country amidst widespread unrest. Just weeks later, Ayatollah Ruhollah Khomeini returned from exile, ushering in a new era for Iran—and for global energy markets.
As if the revolution weren't enough, the situation escalated dramatically in 1980 with the outbreak of the Iran-Iraq War. This devastating conflict further crippled oil production in both nations, leading to another substantial drop in worldwide supply and intensifying economic recessions across the globe.
OPEC's Shifting Fortunes
For some members of OPEC, the Organization of Petroleum Exporting Countries, these soaring prices brought record profits. However, Iran's new government maintained inconsistent and lower production levels, further fueling global price increases. Saudi Arabia and other OPEC nations did try to offset some of the decline by increasing their own output.
Yet, the Iran-Iraq War ultimately exposed divisions within OPEC, diminishing its collective power. Non-OPEC producers, like the United States, began to surpass OPEC in output. Eventually, Saudi Arabia, a key 'swing producer' able to quickly adjust supply, initiated a strategy in the mid-1980s to regain market share by increasing production, which put significant downward pressure on global oil prices.
America's Energy Anxiety
In the United States, the crisis hit with a confusing mix of impacts. Memories of 1973 were fresh, and despite only a slight reduction in overall oil sales, panic buying swiftly ensued. Long lines snaked around gas stations, where idling cars reportedly wasted 150,000 barrels of oil daily.
President Jimmy Carter's administration had already begun phasing out Nixon-era price controls on domestic oil. This timely deregulation, combined with surging world prices, incentivized American producers. Oil output from vast fields like Prudhoe Bay in Alaska rose sharply, and U.S. oil imports began to fall.
In his famous 'Crisis of Confidence' speech in July 1979, President Carter urged Americans to conserve energy, leading by example with solar panels on the White House. He famously declared the oil crisis 'the moral equivalent of war,' signaling a profound shift in national energy policy.
The crisis quickly took on global strategic dimensions. After Iranian revolutionaries seized the U.S. Embassy in Tehran in November 1979, Carter imposed an embargo on Iranian oil. In January 1980, he issued the 'Carter Doctrine,' declaring the Persian Gulf a vital U.S. interest, essentially pledging military intervention if necessary to protect oil flow.
Carter's administration pushed to fully dismantle the remaining price controls on domestic oil, which had kept U.S. prices artificially low compared to the global market. While a contentious move, these controls were ultimately phased out and completely removed in 1981 under President Reagan, allowing market forces to dictate prices and sparking a boom in U.S. oil-producing states.
Beyond Oil: The Search for Alternatives
The crisis spurred a global quest for energy independence. Industrial nations worldwide initiated multibillion-dollar research into alternatives and invested heavily in developing non-OPEC oilfields in places like Siberia, the North Sea, and the Gulf of Mexico. Electric utilities rapidly switched from oil to coal, natural gas, or nuclear power.
Reshaping the Automotive World
The sudden spike in fuel prices caught American automakers largely unprepared. While Detroit's 'Big Three' were producing downsized cars to meet new fuel economy mandates, they struggled to compete with increasingly popular, fuel-efficient imported models, particularly from Asia.
Japanese manufacturers, with their lower production costs and advanced fuel-saving technologies like fuel injection, rapidly gained market share. By 1980, just a year after the Iranian Revolution, Japanese car production surpassed Detroit's, marking a historic shift in the global automotive industry.
The scramble for fuel efficiency prompted significant innovation. While many European brands struggled and withdrew from the U.S. market, Japanese models offered features like multi-valve engines and better overall fuel economy. This push for efficiency dramatically improved the average mileage of cars on American roads, from 15 MPG in 1979 to 20 MPG by 1990.
The combined effects of increased non-OPEC production, a global shift to alternative energy sources, and more fuel-efficient vehicles dramatically reduced worldwide demand for oil. By the mid-1980s, OPEC's market share had plummeted, leading directly to a prolonged period of abundant supply and significantly lower oil prices known as the 1980s oil glut.
Article
1979 oil crisis
The 1979 oil crisis, sometimes referred to as the second oil crisis (in reference to the 1973 oil crisis), refers to the drop in oil production in the aftermath of the Iranian Revolution that led to an energy crisis in 1979. 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 $39.50 per barrel ($248/m3). The sudden increase in price was connected with fuel shortages 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 flooded the market.
Iran
1979 oil crisis
In November 1978, a strike by 37,000 workers at Iran's nationalized oil refineries reduced production from 6 million barrels (950,000 m3) per day to about 1.5 million barrels (240,000 m3). Foreign workers left the country. 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, left Iran at the behest of Prime Minister Shapour Bakhtiar, who sought to calm the situation. After the departure of the Shah, Ayatollah Khomeini became the new leader of Iran.
Effects
Other OPEC members
Fluctuations of OPEC net oil export revenues from 1972 to 2017.
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. OPEC production was surpassed by other exporters such as the United States, as OPEC 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
A line at a gas station in Maryland, United States, June 15, 1979
The oil crisis had a mixed impact on the United States. Richard Nixon had imposed price controls on domestic oil as a result of the 1973 oil crisis. Since then, gasoline price controls had been repealed, but those on domestic 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 ($100/m3). Starting with the Iranian revolution, the price of crude oil rose to $39.50 per barrel ($248/m3) over the next 12 months (its all-time highest real price 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 150,000 barrels (24,000 m3) of oil per day idling their engines in the lines at gas stations.
A gas coupon that was printed but not issued during the 1979 energy crisis
In 1979, the amount of oil sold in the United States was only 3.5 percent less than the record set for oil sold in 1978. 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, 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 implemented odd-even gas rationing, including California, Pennsylvania, New York, 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. The panels were removed in 1986, reportedly for roof maintenance, during the administration of his successor, Ronald Reagan.
A speech Carter gave in April 1977 argued that 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 fully 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 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 a 2019 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, 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 was 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 sold 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, primarily the Asian models, which were mass-marketed and had a lower manufacturing cost as opposed to British and West German brands. 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, 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. The share of Japanese cars in U.S. auto purchases rose from 9 percent in 1976 to 21 percent in 1980. Japanese exports later displaced the automotive market once dominated by lower-tier European manufacturers (Renault, Fiat, Opel, Peugeot, MG, Triumph, Citroen). Some declared 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 and multi-valve engines over the common use of carburetors. The overall fuel economy of cars in the United States increased from about 15 miles per US gallon (16 L/100 km; 18 mpg‑imp) in 1979 to 18 mpg‑US (13 L/100 km; 22 mpg‑imp) by 1985 and 20 mpg‑US (12 L/100 km; 24 mpg‑imp) by 1990. This was one factor leading to the subsequent 1980s oil glut.