Reviewed by Gregory Hilton
1973 was not a good year for America’s prestige and psyche. Problems involving Vietnam, Watergate and inflation were looming, but the most significant long term obstacle is described in The Oil Crisis of 1973-1974 by Karen R. Merrill. A key turning point occurred 37 years ago today when President Richard Nixon signed legislation which would dominate political debate for the next 8 years.
It was the Emergency Petroleum Allocation Act, and it authorized price, production, allocation and marketing controls on oil. Nixon was reacting to the Arab Oil Embargo which had been instituted a month earlier. The embargo resulted in an overnight quadrupling of prices.
Dr. Merrill is a professor of history at Williams College and she provides an excellent but brief history of OPEC. This is the organization which cut back exports as a punishment for America’s support of Israel in the Yom Kippur War. Yom Kippur is the holiest day in Judaism, and the conflict is also known as the October War.
It was waged from October 6th to the 25th, and the Arab world felt psychologically vindicated by early successes they achieved in the conflict. The war began with a successful surprise attack across the Suez Canal and on the Golan Heights. The Soviet Union sent massive arms shipments (including jet fighters and tanks) to Syria, Egypt and Iraq. America responded by resupplying Israel with $2.2 billion in emergency aid.
Merrill captures the drama surrounding the beginning of the embargo on October 17th in the middle of the war. OPEC announced its member states would immediately cut oil production by 5%, and would continue to do so each and every month until Israel withdrew from the West Bank, Gaza, and Jerusalem. The OPEC oil ministers threatened to go to zero production until Israel left the occupied territories.
OPEC eventually cutback production by 20%. Lifting the embargo became America’s top issue for the next five months. Before 1973, Americans had not been aware of their growing dependence on foreign oil. Nixon requested a voluntarily end to gasoline sales on Saturday nights and Sundays, and over 90% of gas station owners complied. This resulted in lines on weekdays, but they were far more mild than what would happen in 1979.
Today’s anniversary also notes the beginning of a recession which would last until March of 1975. GDP fell 3.2% and unemployment hit 9%. In addition to energy security, the author also provides an overview of economic policies in the 1970s, beginning with Nixon’s imposition of across the board price controls in August of 1971.
At the same time he took the nation off the Gold Standard and allowed the dollar to float. This caused the price of wheat to rise by 300% for the OPEC nations. They had been in a mood to retaliate for two years when the Yom Kippur War gave them an opportunity.
This first “oil shock” lasted until March of 1974 when Israel agreed to pull back from the Sinai and the Golan Heights. The embargo and production cutback ended, but as Merrill demonstrates, energy would never again be cheap. Some European nations and Japan reacted to the embargo by trying to disassociate themselves from America’s Middle East policy, and they would refused to sell military equipment to Israel.
This was considered a shinning moment for the OPEC nations. They were then viewed as dominant powers in world politics, and their actions received huge press coverage. The goal of the 1973 legislation at the focal point of this book was to free America from all oil imports by 1980. At that time, the U.S. was importing 36% of the petroleum it used, but today it is 57%.
The energy outlook in the United States remained bleak throughout 1974. In December of that year, Nixon announced that because of the crisis, the White House Christmas tree would not be lighted. Nixon’s 1973 legislation instituted gasoline price controls, but President Gerald Ford moved to rescind them as well as price controls on natural gas. The low market price of natural gas was discouraging a search for new reserves, but the controls remained in effect despite Ford’s repeated requests to Congress.
Jimmy Carter reinstated all energy price controls during his first week in office, and they remained in effect until April of 1979 when he ordered a phased deregulation. This schedule was far too slow to satisfy Congressional Republicans. Carter said energy security was his top priority. He devoted more speeches to the topic than any other subject, and called the oil crisis the “moral equivalent of war” (MEOW).
Older Americans remember having to wait in long lines to get gas, and it was only available on certain days. The rationing was based on Social Security numbers, or on “odd” and “even” license plates. The 1979 crisis happened in the wake of the Iranian Revolution when oil production in that nation nearly stopped, and a year later Iraq’s oil production was severely cut as well. The Carter administration responded by ordering oil companies to stop refining gasoline in the summer of 1979 and to instead refine home heating oil for a coming winter.
In a public relations fiasco for the U.S. Congress, it was revealed that the House and Senate had their own gas station with no lines, and the price was well below the national average. This was one of many factors that contributed to the 1980 GOP landslide. Ronald Reagan abolished price controls by executive order. This action was also taken during Reagan’s first week in office, and the order said:
All crude oil and refined petroleum products are exempted from the price and allocation controls adopted pursuant to the Emergency Petroleum Allocation Act of 1973, as amended.
The New York Times predicted Reagan’s order would result in skyrocketing gasoline prices but they actually fell and gas lines disappeared. The author also discusses the fate of the American automobile industry. In the 1970s it was not prepared for the sudden rise in fuel prices, and its production lives were slow in shifting away from large, gas guzzling cars. The energy crisis proved to be a tremendous bonanza for Japanese imports.
In 1975 the corporate average fuel economy (CAFE) standard was created. There would be no more station wagons, but a loophole was found for SUV’s and trucks. Congress in the 1970s enacted a 55 mph speed limit, daylight savings time was issued year round, the national oil stockpile was created, and the Energy Department became a cabinet office.
Additional changes included a mandate from the Carter administration that temperatures in homes and public buildings be kept at 65 degrees. Carter also issued an Executive Order directing the private sector not to lower air conditioning below 78 degrees in the summer nor to raise heat above 66 degrees in the winter. His order was largely ignored. Carter also proposed “inducements” to encourage industrial America to switch from oil and natural gas to coal. Conservationists now routinely denounce coal.
Historians now regard 1973 as the most pivotal year in energy history. Prior to that time there had been an abundance of cheap energy, but afterwards, Americans experienced electricity brown outs and rapidly rising prices for gasoline and other consumer goods.
Though they were well intentioned, price controls and the allocation system can now be seen as a failure. They made the problem worse. For the first time there were long lines at gas stations and then no gasoline was available. After the oil price collapse of the mid-1980’s, American oil production fell, and the share of imports rose. Now our negative trade balance in energy runs well over $1 billion a day, a sum much greater than the trade deficit with China or the costs of the wars in Iraq and Afghanistan.
I would recommend this book but it is too brief and the author needed a concluding chapter on the lessons learned from the crisis and policy recommendations for the future.