Title: The 1979 Energy Crisis — a concise explainer
What it was (short):
In 1979 a global disturbance in crude-oil supplies produced a sharp jump in oil and gasoline prices and widespread consumer panic in the United States. Although crude production fell only modestly, short-term shortages, rationing and policy responses amplified the price shock and its economic effects.
Key definitions
– Energy crisis: a period when the supply of energy (here, crude oil and refined fuels) is insufficient to meet demand at prevailing prices, producing shortages or high prices.
– Oil price shock: a rapid, large rise in the price of crude oil caused by a supply disruption, geopolitical event or market behavior.
– Refinery: an industrial plant that processes crude oil into usable products such as gasoline, diesel and heating oil.
– OPEC (Organization of the Petroleum Exporting Countries): a group of oil-exporting nations that can influence world oil supply and prices.
What triggered the 1979 crisis
– The proximate cause was political turmoil in Iran (the Iranian Revolution), which reduced Iran’s oil output and created uncertainty about future exports from a major supplier.
– The global supply decline was relatively small in percentage terms (roughly a 7% drop in oil output), but markets reacted strongly because oil demand was short-run inelastic (consumers could not quickly reduce usage).
– Within about a year, the international crude price rose substantially — the price per barrel nearly doubled in that interval.
U.S. policy and market responses that worsened short‑run pain
– Price regulation: U.S. authorities still controlled many domestic oil prices, and some regulatory actions restricted gasoline availability while inventories were being rebuilt.
– Allocation orders: the U.S. Department of Energy required some large refiners to sell crude to smaller refiners that lacked supply; because those smaller plants had limited refining capacity, the policy inadvertently delayed gasoline production.
– Monetary context: central-bank (Federal Reserve / FOMC) reluctance at the time to raise interest rates quickly contributed to rising inflation in the late 1970s; higher inflation amplified the real‑price effects of the oil shock.
Short‑term effects consumers saw
– Panic buying and long lines at gas stations.
– State-level rationing in some U.S. states: several states implemented odd/even license-plate rules that limited how often drivers could buy gasoline (e.g., purchasing on alternating days based on whether a license plate number was even or odd).
– Concerns about heating-oil availability ahead of winter, especially in New England where home heating oil use was high.
Medium- and long‑term consequences
– Consumer behavior shifted toward smaller, more fuel-efficient cars in subsequent years.
– Utilities and governments accelerated research into alternatives to oil-fired power generation (including nuclear) and broader fuel R&D.
– Global oil demand fell in the years after the shock. OPEC’s share of the global oil market declined from about half in 1979 to around the high 20s percent range by the mid-1980s.
Short checklist — what to remember about the 1979 crisis
– Cause: major geopolitical disruption (Iranian Revolution) → supply uncertainty.
– Supply decline: modest in volume terms (~7%) but large price reaction.
– Policy mistakes: price controls, allocation orders and monetary easing amplified effects.
– Visible symptoms: gas lines, odd/even rationing, heating‑oil worries.
– Long‑run shifts: more fuel-efficient vehicles, energy R&D, lower oil intensity and reduced OPEC share.
Worked numeric example (illustrative)
– Suppose crude oil was $20 per barrel before the disruption and rose to $39.50 within a year. Percentage increase in price = (39.50 − 20.00) / 20.00 = 0.975 = 97.5%. In words: the price almost doubled (a 97.5% rise).
– If supply (output) fell by about 7% at the same time, a rough back‑of‑the‑envelope estimate for short‑run price elasticity of demand (PED = %ΔQuantity demanded / %ΔPrice) would be: PED ≈ −7% / +97.5% ≈ −0.072. This very low absolute value illustrates that demand was highly inelastic in the short run, so a small supply reduction produced a large price rise.
– Important caveat: this elasticity calculation is illustrative and assumes the observed quantity change equals the supply drop and that other factors (stocks, secondary policy effects, speculation) are negligible.
Practical lessons for traders, students and readers
– Small percentage shocks to supply can produce large price moves when demand is inelastic.
– Policy responses (price controls, forced allocation) can worsen shortages if they disconnect prices from market signals.
– Energy shocks often trigger structural change — e.g., shifts in vehicle fleets and energy sources — that alter markets over years, not just months.
Sources
– Investopedia — “1979 Energy Crisis”: https://www.investopedia.com/terms/1/1979-energy-crisis.asp
– U.S. Energy Information Administration (EIA) — historical energy timelines and analysis: https://www.eia.gov/energyexplained/history.php
– Encyclopaedia Britannica — “1979 Oil Crisis / Energy crisis” entry: https