The Energy Crisis of the 1970's

The Energy Crisis of the 1970's

In October of 1973 the Organization of Petroleum Exporting Countries (OPEC) inflicted an oil embargo on the Unites States of America. This was the outcome of our support to the Israeli nation during a time of need. This embargo damaged the U.S. economy so greatly that many were unsure if the country would escape such devastation.

In the early 1970's under President Nixon's order, the United States of America began shipping arms to its ali Israel. At this time Israel was having problems fighting Egypt in the Yom Kippur War. Not long after the start of the war, OPEC announced that they would be inflicting an oil embargo on any country that was aiding Israel in the conflict. Among the few countries that were effected, the United States suffered greatly.

The impact of the embargo was drastic and had an immediate effect on the economy. In the United States, the retail price of a gallon of gasoline rose from a national average of 38.5 cents in May of 1973 to 55.1 cents in June of 1974. Meanwhile, The New York Stock Exchange shares lost $97 billion dollars in value in six weeks.

With the onset of the embargo, U.S. imports of oil from the Arab countries dropped from 1.2 million barrels a day to a mere 19,000 barrels. Daily consumption dropped by 6.1 percent from September to February, and by the summer of 1974, by 7 percent as the United States suffered its first fuel shortage since World War Two.

The U.S. government response to the embargo was quick, but of limited effectiveness. A national speed limit of 55 miles per hour was imposed to help reduce the consumption of oil. President Nixon named William Simon as an official "energy czar," and in 1977 a cabinet-level Department of Energy was created, which led to the creation of the United States' Strategic Petroleum Reserve. The National Energy Act of 1978 was also largely a response to this crisis. The crisis was further exacerbated by government price controls in the United States, which limited the price of "old oil" while allowing newly discovered oil to be sold at a higher price, resulting in a withdrawal of old oil from the market and artificial scarcity. The rule had been intended to promote oil exploration. Although these new programs were effective for the US, not all of the petroleum problems had been solved for the country.

To add to the inconvenience of the lack of petroleum in the USA, the blizzard of 1977 created a very large problem for many families. At this time, the oil prices skyrocketed even higher than they had previously been. Families went without heat for days. When it was finally possible for workers to return to their jobs, many gas stations had no gas. If you were lucky enough to come across a station that still had gas, the prices were outrageous. At one time, there was such a shortage of gasoline that people with odd numbered license plates were only allowed to get gas on odd numbered days of the month; the even numbered plates were to receive gas on even days of the month. This was an extreme problem for the entire country.

Although gas prices and shortages are not at the extreme level today that they were in the 70's, there are still many problems that have continued on in our country.

The Gas Industry Today

` When the federal government's Energy Information Administration released its gasoline forecast recently, the agency predicted that prices would remain between $2.10 and $2.35 a gallon for the next two years. That's because crude oil supplies are tight. Crude oil is used in the production of gasoline. The agency says OPEC is pumping as much crude as it can, but so far it hasn't been able to keep up with a surge in worldwide demand.

The agency's senior analyst Mike Burdette says U.S. gas demand is climbing 1 to 2 percent per year, despite the high gas prices.

"No one really knew if you saw gasoline prices ... consistently above $2 a gallon, would we see demand fall off? And the answer is that so far we've seen relatively little what we call elasticity of demand in response