Daniel Sebagh
Dr. Armiger
Response paper #2
4/26/12

Oil Crisis in the 1970’s

The Oil Crisis of the 1970’s was a major period in American history, when a number of political, global and social events came together to create a ‘perfect storm’. The Seventies was an era filled with people seeking self-fulfillment (The ‘Me’ Decade), where the nation was growing at a fast pace. People, during this time, concentrated on their own leisure and happiness. Behind the narcissism and selfishness of many people’s attitudes, an oil crisis struck America which largely impacted the automobile industry and led to a rise in gas prices. The combination of stagnant growth and price inflation during this era raises many issues, while many attempts to end the crisis, such as Jimmy Carter’s Energy plan, substantially made it worse. These problems caused Americans to focus more on economic issues versus social issues. The “Me Decade,” a term coined by novelist Tom Wolfe, was a concept of the Seventies- “an era of narcissism, selfishness, personal rather than political awareness… The ‘70’s was the decade in which people put emphasis on the skin, on the surface, rather than on the roof of things… It was the decade in which image became preeminent because nothing deeper was going on (Schulman, 145).” It described the new American self-awareness and the collective retreat from history, community and human reciprocity. Compared to the 1960’s, Americans in the 1970’s were self-absorbed and passive; it was a stylistic change in American preoccupations (Schulman, 145). Cheap gas prices allowed Americans to drive in gas guzzling vehicles, which eventually changed the automobile industry due to the Oil Crisis.
Studying the oil crisis of the 1970’s dramatically illustrates American dependence on fossil fuels. At the time, the United States was consuming a huge percentage of the world’s energy in proportion to its population. Domestic oil production declined at the same time, leading the U.S. to rely heavily on foreign oil, and in 1973, United States was placed under an OPEC embargo for political and economic reasons, which eventually ended after a year. Middle-eastern OPEC nations stopped exporting oil to the United States and other western nations. They destined to punish western nations that supported Israel in the Yom Kippur War (Schulman, Pg 125). Of the many results, the embargo allowed higher prices all throughout the western world, especially in the United States. The United States was forced to consider many things about energy, such as the cost and supply. Arab nations realized the power they had over the world through oil, allowing them to keep the prices high and make a larger profit.
The Oil Crisis provides a good example of how chaos can erupt when there is a disconnect between what citizens expect and how the government reacts. OPEC members agreed to use their leverage over the world price-setting mechanisms for oil to quadruple world oil prices, after attempts at negotiation with major oil companies failed. One of the most immediate effects of the embargo was a skyrocketing of energy prices, as a result of limited supply and heavy demand. In 1973, the average price per gallon for oil was $0.39, and in 1979 the average price per gallon was more than double, at a mere $0.86 (Alpanda, Peralta-Alva, Pg 2). The causes forced the nation to realize that everything seemed to revolve around cars into misery and uncertainty. The uncertainty of Americans worsened when people didn’t believe the crisis was real. Some believed it was a conspiracy perpetrated by big oil companies to reap high profits, while blaming the government.
America found that it could no longer afford to selfishly consume oil, and immediate results of the embargo were dramatic. The American Automobile Association recorded that up to twenty percent of the country’s gas stations had no fuel one week during the crisis (AAA Foundation). In some places, drivers were forced to wait in line for two to three hours to fuel their vehicles. Rationing strategies went into effect, with ration cards and flag systems in which people could take turns purchasing gas and other fuels on the basis of license plate numbers. There was an instant drop in the number of homes created with gas heat, because other forms of energy were more affordable at the time. The total consumption of oil in the United States dropped twenty percent, due to the effort of the public to conserve oil and money (Alpanda, Peralta-Alva, Pg 15).
Arab nations benefited from inflated oil prices, while Americans suffered at the pump. One of the long-term effects of the embargo was an economic recession throughout the world. While inflation remained above ten percent, unemployment was at its record high. (Alpanda, Peralta-Alva, Pg 15). The era of economic growth which had been in effect since World War II had ended and economic prosperity reflected oil consumption statistics. During this time, the stock market contracted radically, an event which foreshadowed future stock market instabilities linked to the price of oil.
The stagnant economy of 1973 illustrates corporate market valuations with the oil crisis initiated by the OPEC embargo. A case study reveals that “The links between the increase in energy prices and the fall in the market value of non-energy producing corporations are due to: First, the sharp and persistent increase in energy costs squeezed both current and expected future dividends causing a fall in market value. Second, as the increase in energy costs was highly persistent, corporations started adopting and investing in new technologies that were more energy-efficient. This spur in energy-saving technologies resulted in capital obsolescence for the old energy-inefficient technologies driving their value down (Alpanda, Peralta-Alva, Pg 3).” The importance of these case findings allows us to understand the stock market crash of 1973-74. The crash came after the collapse of the Bretton Woods system, with the associated ‘Nixon Shock’ and the United States dollar devaluation under the Smithsonian Agreement. It was compounded by the outbreak of the 1973 oil crisis (Alpanda, Peralta-Alva, Pg 4).
Energy-saving technologies and efforts by U.S. government went to desperate measures to ease the situation. Congress issued a 55 mph speed limit on highways, which not only allowed oil consumption to go down, but fatalities decreased as well. Daylight savings time was also issued year round in an effort to reduce electrical use in hopes of preserving oil (Alpanda, Peralta-Alva, Pg 22). Tax credits were offered to those who developed and used alternative sources of for energy, including solar and wind power. Nixon, who was president at the time of the first oil crisis of 1973, formed the Energy Department and it became a cabinet office, developing the national energy policy. They made plans to make the United States energy independent. He also issued a voluntary cutback on the consumption of gasoline, where gas stations voluntarily closed on Sundays. Gas stations also wouldn’t sell more than ten gallons of gasoline to a customer at a time. These efforts were made to help the public become more fuel-efficient (Alpanda, Peralta-Alva, Pg 13).
One of the biggest long-term effects due to the oil crisis was the efforts of the automobile industry. The productions of giant, gas guzzling cars were halted in Detroit. Cars with big engines and large heavy bodies were no longer made in order to preserve oil and boost the economy. The Corporate Average Fuel Economy (CAFE) eventually raised its standards up to 27.5 miles per gallon (Masito). 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. Detroit was forced to increase the fuel efficiency of all its cars. The sale of Japanese cars increased, because they met the efficiency standards that American cars did not. The American Auto industry was forced to meet these standards and reformulate its cars.
Although the embargo ended only a year after it began in 1973, it had opened a new era in international relations. The embargo was a political and economical achievement for the Middle East. Third world countries discovered that their natural resources, on which they heavily depend on, could be used as a weapon in both political and economical situations. Rising oil prices continued to be a threat to not only America’s economy, but also the rest of the world. During President Jimmy Carter’s presidency, he is faced with challenging efforts of Nixon’s attempts to ease the staggering prices of crude oil. He refers to the oil situation in the 70’s as “the moral equivalent of war (Schulman, Pg 130).”
President Carter was inaugurated in 1977, where his persona and approach with the American public is remarkably highlighted. His presidency focused on many issues that were innate to him such as protecting the environment, balancing the economy, and passing legislation to promote equality for American citizens. In regards to Carter and the oil industry, he had an initial impact on changing the views of Americans’ reliance on oil. As a result of the energy crisis, he sought to create a new energy industry. Carter attributed to the new industry of the production of Ethanol, where he endorsed research of alternative energy sources through the Department of Energy. On July 15, 1979, Carter outlined his plans to reduce oil imports and improve energy efficiency in his “Crisis of Confidence” speech. “His favorite word, as candidate and as president, was comprehensive; the nation, he believed, needed a comprehensive energy policy… His national energy program contained 113 separate proposals (Schulman, Pg 123).” Carter’s comprehensive plan planned to deal with the three E’s of ‘energy, environment, and economy’ (Schulman, pg 125). He encouraged citizens to do what they could to reduce their use of energy.
Attempting to create a comprehensive plan needed much more structure. Carter named James R. Schlesinger his special adviser on energy, where Carter devised stringent guidelines to devise the program within ninety days; to make it comprehensive- an all-or-nothing proposal that rival interests could not pick apart (Schulman, Pg 126).” After three months, Schlesinger and Carter devised the NEP plan that featured 113 separate proposals. Such measures of the plan included a gas guzzler tax on low-mileage cars, tax credits for solar power and home insulation, and new fuel efficiency standards for buildings, cars, and refrigerators. Carter presented the highlights of the plan on national television and stressed that “The energy crisis has not yet overwhelmed us, but it will if we do not act quickly (Schulman, pg 127).”
Although, Carter’s comprehensive approach that was devised in secret and presented as a finished product proves failure. In secrecy, the comprehensive approach alienated his allies and energized his opponents, which Schlesinger not only froze out Congress, but also kept Carter’s senior advisers in the dark. The comprehensive approach infuriated Carter’s supporters both inside and outside the White House. “Carter made false starts on all three E’s. Forced to back off ambitious proposals, he appeared ineffective, impotent (Schulman, pg 131).”
The Oil Crisis in the Seventies was an era in history that changed much of how the United States was affected in the long run. The result of the Oil Crisis hindered the necessity and feasibility for the United States to seek alternative energy resources, and seek for new avenues for energy exploration. People during the time were careless and inept with the crisis that their country was facing, continuing to drive gas-guzzling vehicles and living vicariously through their will. Economically, the U.S. suffered tremendously from the crisis, and Jimmy Carter was no hero to mark an end to it. In conclusion, the Oil Crisis was a life lesson for the United States, and still continues to be a lingering issue as we continue to struggle with foreign countries that distribute oil to our country.

Work Cited

1. Schulman, J. Bruce. The Seventies: The great shift in American culture, society, and politics. Cambridge, MA: First Da Capo Press, 2002. Print. 2. "AAA Foundation for Traffic Safety - Resources." Document Moved. Web. 02 May 2012. <http://www.aaafoundation.org/resources/index.cfm?button=links>. 3. Alpanda, Sami, and Adrian Peralta-Alva. "Oil Crisis, Energy-Saving Technological Change and the Stock Market Crash of 1973-74." Social Science Research Network. 26 June 2008. Web. 02 May 2012. <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1032082>. 4. Mastio, David. "Lessons from the oil embargo still count in the 1990’s." The Detroit News. 25 October 1998. Web. 02 May 2012.
<http://detnews.com/1998/biz/9810/25/10250034.htm>