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Further information: 1979 world oil market chronology

Graph of Top Oil Producing Counties, showing drop in Iran's Production ^[1]

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, allowing Ayatollah Khomeini to gain control. The protests shattered the Iranian oil sector. While the new regime resumed oil exports, it was inconsistent and at a lower volume, forcing prices to go 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. ^[2] However, a widespread panic resulted, driving the price far higher than would be expected under normal circumstances. Price controls in the United States on domestic sources of oil also exacerbated the situation.^[3][4]

In 1980, following the Iraqi invasion of Iran, oil production in Iran nearly stopped, and Iraq's oil production was severely cut as well.

After 1980, oil prices began a six-year decline that culminated with a 46 percent price drop in 1986. This was due to reduced demand and over-production, which caused OPEC to lose its unity. Oil exporters such as Mexico, Nigeria, and Venezuela expanded production. Ending of price controls allowed the US and Europe to get more oil from Prudhoe Bay and the North Sea.

[edit] Iran

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). ^[5] 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.^[6]

[edit] Effect on Other OPEC members

OPEC net oil export revenues for 1971 - 2007. ^[7]

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

[edit] Effect on the United States

Line at a gas station in Maryland, USA, June 15, 1979.

Richard Nixon had imposed price controls on domestic oil, which had helped cause shortages that led to gasoline 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 Gasoline controls were repealed, but controls on domestic US oil remained.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. Over the next 12 months the price of crude oil rose to $39.50 (its all time highest real price until March 7, 2008.)^[8] 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. However, some price controls remained in place, and the supply of oil was not boosted.^[3][4] Hence, 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.^[9]

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.^[10]

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 Jersey, and Texas. Coupons for gasoline rationing were printed but were never actually used during the 1979 crisis.^[11]

In July 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).^[12] During the speech, Carter wore a cardigan and encouraged citizens to do what they could to reduce their use of energy. He also installed solar power panels on the roof of the White House and a wood-burning stove in the living quarters. However, the panels were removed in August 1986 during the administration of his successor, Ronald Reagan, after a leak and were never replaced.

Carter's fire-side 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.^[13] 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.^[14] He also said he would impose a windfall profit tax on oil companies.^[15] While the regulated price of domestic oil was kept to $6 a barrel, the world market price was $30.^[15]

In 1980, the U.S. Government established the Synthetic Fuels Corporation to produce an alternative to imported fossil fuels.

[edit] Oil patch

When 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.^[16]

[edit] Automobile fuel economy

At the same time, Detroit's then-Big Three automakers (Ford, Chrysler, GM) were marketing downsized automobiles which met the CAFE fuel economy mandates passed in 1978; by the mid-1980s, a majority of rear wheel drive (RWD) family sedans and station wagons sold poorly despite government mandates from CAFE; vehicles like the Ford Fairmont and Dodge St. Regis were short-lived in response to second energy crisis.^{[citation needed]}

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.^[17]

When RWD family sedans were marketed during this era, this is where Japanese imports were building inroads; by the start of the 1980s, every automaker was making the transition to front-wheel drive.

[edit] See also

Energy portal

• Energy crisis
• Iran hostage crisis
• 1979 world oil market chronology
• 1980s oil glut
• 1990 spike in the price of oil
• Oil price increases since 2003
• Hubbert peak theory

[edit] Further reading

• The Prize: The Epic Quest for Oil, Money, and Power,(1993) , by Daniel Yergin, Simon & Schuster, ISBN 0671799320 & ISBN 0671502484

[edit] References