This Is What Really Caused The 1970s Energy Crisis

A gas station shut down as a result of the 1970s energy crisis.

The 1970s energy crisis was among the most important economic events of the late 20th century. It changed how countries saw energy security, and it set in motion long-term changes in policy, car design, and personal energy use. The crisis did not emerge overnight but evolved over time, with multiple underlying factors working together.

Countries all around the globe were getting increasingly dependent on oil. After World War II, Western Europe and the United States needed larger and larger quantities of oil to fuel their growing economies. Cars filled the roads, factories expanded, and people heated their homes with oil. This made Western countries extremely reliant on foreign oil, especially Middle Eastern oil. For decades prior to the crisis, oil prices were low and stable. This was the case because a small group of big Western oil companies, often called the "Seven Sisters," worked with friendly governments to keep prices low. The steady supply of cheap oil drove economic growth quickly in the West during the 1950s and 1960s.

This started to change in the late 1960s, however. Oil-producing countries began to want more control over their natural resources. They had formed the Organization of the Petroleum Exporting Countries (OPEC) in 1960, but the organization was not strong initially. Gradually, though, OPEC members became more organized in their actions and more influential in oil pricing.

October of 1973 was when the first big shock came. Egypt and Syria attacked Israel on Yom Kippur, and it marked the beginning of the Yom Kippur War. The United States decided to help Israel with military support, and the Arab oil producers, who certainly did not like this, responded by cutting back production and placing an embargo on oil shipments to the United States and other countries that had helped Israel. The oil embargo had immense consequences. Oil prices jumped from approximately $3 per barrel to nearly $12 in a matter of months. Gas stations in the United States ran out of gasoline, and motorists waited in line for hours to fill up with gas. Things got so bad that the U.S. government asked people to reduce their thermostat usage in order to save energy and even enforced lowered speed limits on highways to make cars use less gasoline. The embargo was taken down in March of 1974, but the oil prices stayed high. This was truly when OPEC had found out how much control it had over Western economies.

A second energy shock came in 1979 when a revolution in Iran overthrew the Shah, who had been pro-Western in his interests. Iranian oil production plummeted during the political instability, and it was made worse when Iraq invaded Iran in 1980, leading to an eight-year war that continued to interfere with oil supplies. Oil prices more than doubled again, reaching about $39 per barrel by 1981.

However, the energy crisis was not solely the result of Middle Eastern politics. Several other factors made the situation bad. One was that the United States’ oil production had started to decline, just after peaking around 1970. The timing could not have been worse because just when the country needed more domestic oil to reduce the dependence on imports, its own wells were producing less.

Another problem was economic policy in most Western countries. Governments had been holding interest rates down to spur economic growth, which had set off inflation. Then, when the oil crisis hit, it pushed inflation even higher. The combination of rising prices and slow economic growth happening at the same time created "stagflation,” which is a troublesome mix of high unemployment and high inflation that cannot not be resolved by normal economic remedies. The energy crisis also exposed weaknesses and flaws in how Western countries had built their economies and cities. The U.S. had developed on a diet of low-cost gas and big cars. Suburbs were expanding far away from city centers, making people travel long distances daily. Factories, power plants, and homes were not designed with energy conservation in mind because no one had cared much about energy prices before.

The impact of the energy crisis went far beyond higher prices at the gas pump. It changed how countries thought about energy policy. Western nations initiated programs to find more domestic oil. The United States created the Strategic Petroleum Reserve to store huge amounts of oil just in case for any future crises. Governments funded research into alternative fuels like solar power and wind power, while automakers changed their designs to be more efficient. Before the crisis, American cars were bigger and heavier, with larger engines that used lots of gasoline. After the crisis, smaller and more fuel-efficient cars became popular. Japanese auto companies like Toyota and Honda, which made smaller cars that used less gasoline, gained market share in the U.S. The government also implemented gas mileage standards that forced automobile companies to improve the fuel efficiency of their vehicles.