WHAT IS ‘1979 energy crisis’

The 1979 energy crisis, the second of two oil-price shocks in the ’70s, resulted in widespread panic about potential gasoline shortages, and far higher prices for both crude oil and refined products. Oil output declined only by 7% or less, but the short-term supply disruption led to panic buying, long lines at gas stations, and state-mandated gasoline rationing in California, New York, Pennsylvania, Texas and New Jersey. In these populous states, consumers could only purchase gas every other day of the week, based on whether the last digit of their license plate numbers was even or odd. (For related reading, see: Possible Effects of an Iran Embargo.)

BREAKING DOWN ‘1979 energy crisis’

The 1979 energy crisis occurred when the global supply of crude oil declined notably in the aftermath of the Iranian Revolution, which started in early 1978 and ended in early 1979 with the fall of Shah Mohammad Reza Pahlavi, the state’s monarch. Short-run disruptions in the global supply of gasoline and diesel fuel were particuarly acute in the spring and early summer of 1979. In the U.S., the gasoline shortage also led to fears that heating oil might be in short supply in the winter of 1979-80, especially concerning for New England, where demand for home heating oil was the highest.

It would be erroneous, however, to blame the crisis solely on the fall of the Shah. Notably, the U.S. faced more-acute pain from the crisis than other developed countries in Europe that also depended on oil from Iran and nearby countries in the Middle East. Part of the reason had to do with fiscal policy decisions in the U.S.

Oil prices were still largely regulated the U.S. in early 1979, and as such. the federal government ordered refiners to restrict the supply of gasoline in the early days of the crisis in order to build inventories. This directly contributed to higher prices at the pump. Also playing a role was an unintended supply restriction resulting from the Department of Energy’s decision to make a handful of large U.S. refiners sell crude to smaller refiners that could not find supply. Unfortunately, the smaller refiners had limited production capabilities, which further delayed gasoline supply, thus also contributing to higher gas prices.

Monetary policy leading up to the crisis also seemingly played a role to a degree, with the Federal Open Market Committee’s reluctance to raise target interest rates too quickly contributing to rising inflation late in the decade, resulting in higher prices for energy and a range of consumer products and services.

CONSERVATION efforts during and following the ‘1979 energy crisis’

Amid the crisis, consumers were strongly encouraged by politicians to conserve energy and limit unnecessary travel. In subsequent years, the 1979 crisis led to the sale of more compact and subcompact vehicles in the U.S., most with meaningfully smaller engines and better fuel economy. Utility companies worldwide sought fuel alternatives, including nuclear power, and governments spent billions of research on alternative fuels. As a result of these combined efforts, daily worldwide oil consumption declined in the six years following the crisis. Meanwhile, OPEC’s worldwide market share declined to 29% in 1985, down from 50% in 1979.

(For related reading, see: What We Learned from the Last Oil Shock.)


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