During the late 1960's and early 1970's the United States went through profound changes (Wells 2). At this time, Iran, Saudi Arabia, and Venezuela formed OPEC, the Organization of Arab Petroleum Exporting Countries. OPEC supplied massive amounts of oil to the U.S., Western Europe and Japan ("Oil Embargo" 1); back home the first American anti-war protests of U.S. involvement in Vietnam took place in 1963. President Lyndon B. Johnson ordered U.S. military intervention and bombing of North Vietnam (Wells 2). As the undeclared Vietnam War expanded, so did the anti-war movement in the United States. In 1967, anti-war protesters despised the formation of the national organization of draft resisters. A few months later 50,000 surrounded the Pentagon and preached against the war, nearly 700 were arrested. Among the many participants in the anti-war movement,Rev. Martin Luther King, Jr. also demonstrated his views about the war. The Paris Peace Accords put an end to U.S. military involvement in the war. Even though the war was over, the country was still divided. The embarrassing U.S. defeat in Vietnam left many Americans second guessing and sacred. Thousands died in the Vietnam War and many veterans returned to the U.S. in extremely poor conditions. Veterans were unappreciated, disrespected, and blamed for the loss. Economically, pressures to be victorious caused extreme federal spending and put the U.S in the gutter.
Socially, many radical ideas of the 1960's and early 1970's influenced people to fight for civil change. Women, minorities, and homosexuals demanded equality, acceptance, and privileges in society. In politics the number of African Americans in Congress increased and political involvement increased in cities such as, Los Angeles, Detroit, and Atlanta. American's relied on themselves and thrived for independent success. American's drove big engine-cars and listened to the Beatles (“American Cultural History" 1). As the world was prospering and growing in population, the demand of raw materials was rising as well. The industrialized world, especially the U.S. was growing vulnerable to oil from the Middle East. In 1973 during the Yom Kippur War between Arab's and Israeli’s OPEC Arab members formed a separate group for exerting pressure on the West over its support of Israel ("OPEC" 4). OPEC imposed an oil embargo on the U.S. and its Western Allies and increased the price of a barrel of oil from three dollars to five dollars and eleven cents a barrel (Trumbore 1). This event led to energy crises in the United States. The energy crisis in 1973 and 1979 had a significant impact on American society.
Before OPEC put an embargo on oil the U.S. imported a third of its oil from Arab nations from the Middle East, Western Europe imported 72 percent and Japan imported 82 percent. OPEC was mostly owned by the U.S., British, and Dutch nationals in order to reduce oil prices and payments to producers. At first OPEC worked as an informal unit for the sale of oil by Third World countries; it combined its activities in order to gain a larger amount of revenues by Western oil companies and greater control over its production of oil. However, OPEC did not display its power over the production of oil until 1973. OPEC devised a plan of "counter-penetration" to weaken the industrial economies which depended heavily on oil from Third World countries weak ("OPEC" 3). OPEC shocked the world in October 17, 1973, when Arab leaders "unsheathed a new political weapon--oil" (“Oil Embargo" 1). Arab members of OPEC were angry towards U.S. and Western European support in Israel during the Yom Kippur War. As a result, OPEC declared that they would no longer ship petroleum to nations that supported Israel and its conflict with Egypt. At the same time, OPEC states began to use their power over the world price-setting of oil and quadrupled world oil prices. This hurt oil-dependent countries such as the U.S., Western Europe, and Japan ("OPEC" 2). The decisions OPEC made largely influenced the price of oil in the world. For example, the oil shock led to increases in oil up to four times and lasted from October 17, 1973, and ended on March 18, 1974. On January 7, 1975, OPEC nations increased crude oil prices by ten percent. OPEC was successful at increasing oil prices for long periods of time; Saudi Arabia was mainly to blame. Saudi Arabia cut the production of their oil while other countries went over their production of oil. With their excess supply of oil, Saudi Arabia was able to increase the supply of oil, which gave them total control over the production of oil. However, an increase in oil prices causes a decrease in consumption and possibly a net decrease in revenue, but the same time showcased the Middle Eastern power ("OPEC" 1).
In 1974 prices in oil quadrupled to $12 per 42 U.S. gallon barrel, which extremely devastated the U.S. market. North America was expanding its highways, suburbs, and needed oil (Forcing 1). Arab nations controlled 60 percent of oil reserves in the non-
Communist world, "they had the Western nations over a barrel" ("Oil Embargo" 1). Production cuts created extreme shortages, especially in the U.S. which had doubled the amount of oil consumption between 1950 and 1974; the U.S. alone was consuming 33 percent of the world's energy and using nearly 40 percent of the world's wealth. Next, Arab nations cut oil production by 25 percent and embargoed all oil exports to the U.S. ("OPEC" 3). The U.S. paid oil from the Middle East at a price fixed in dollars ("OPEC" 3). U.S. only received 35 percent of its oil supply during the 1973 Oil Embargo, causing 15.8 million dollars worth of damage in 1973 and 14.9 million in 1975 ( Williams, 2). In 1969 President Nixon inherited an economy in which inflation was a problem ("OPEC" 3). In 1971 policy makers tried to attack inflation by reducing consumer purchasing, but this led to higher unemployment. High prices and high unemployment created stagflation. This was a dilemma for economic policy makers because high unemployment and inflation had never co-existed in the history of the United States ("Oil Embargo" 1). The government was not prepared for stagflation. Policy makers tried to stimulate purchasing by creating jobs, but this only led to higher prices of oil. The economy was witnessing the worst recession in 40 years; this was just the beginning of the crisis ("American Cultural History" 2.)
An energy crisis is a situation where a nation suffers from a lack of energy supplies, oil. It is accompanied by high energy prices which becomes a threat to the economy and national security. National security is threatened when the government is unable to exercise foreign policy options, in which the government does not have alternative sources of oil from other countries besides Middle East. There is a crisis in
economic security when there is a decline in economic growth, increasing inflation, rising unemployment, and a loss in billions of dollars. President Nixon responded to this catastrophe by increasing federal spending and devaluing, which essentially to decrease the value of the dollar. Nixon devalued the dollar in 1971 and in 1973 by eight percent in order to stimulate the economy and make American goods more competitive overseas. In addition, Nixon froze prices of oil, set guidelines and voluntary controls on oil prices by limiting the distribution of oil to American gas stations' (Trumbore 1). Inflation stayed at about four percent during the freeze, but once the controls were lifted inflation climbed. Steadily, inflation reached twelve percent (Williams 1). After Nixon's impeachment in 1974, Gerald Ford took office. The country was overpowered with stagflation; Ford wanted to solve the problem in a "Republican fashion." First, President Ford tightened the money supply by raising interest rates and limiting government spending. President Ford's response "proved to be no more than a series of ineffectual wage and price guidelines monitored by the federal government." Unemployment went up by nine percent. Nixon's freeze didn't work neither did Ford's interest rates. The nation's next hope was President Jimmy Carter (“Oil Embargo” 2).
President Carter took office in 1977, while 7.4 percent of the nation’s work force unemployed. The Carter Administration adopted a new strategy of overpowering stagflation called, deregulation (decontrol or remove something from regulation or control). President Carter deregulated air, surface transportation, savings, and the loan industry. Supporters of deregulation argued that the policy increased competition, stimulated new investment, and "forced inefficient firms to close down or improve."
However, deregulation proved inefficient: inflation rose to 13.3 percent and rural towns suffered cutbacks of bus, rail, and air service. Truckers and rail workers lost benefits because of the deregulation. Cable T.V. viewers hated the high interest rates and travelers hated to pay rising air fare. By 1978 the total petroleum consumption averaged 17.1 million, eight percent higher than in 1973 ("Oil Embargo" 2). Imports of petroleum supply were 35 percent in 1973 and about 42 percent in 1978 (Williams, 2). Import rates exceeded 50 percent in a few months after, dependence of oil growing faster and faster. In addition to all this chaos, the Federal Reserve expanded the money supply in 1977, but interest rates rose to their highest levels in 1979, followed by an increase in unemployment ("Oil Embargo" 2). The 1973 and 1979 energy crises left Americans' in a shock (Williams 2).
There are many similarities between the 1973 and 1979 oil crises. They both started with political “turmoil." The government had low oil stocks and had large import concentration from a small number of suppliers. Both had declining U.S. petroleum production and high dependency on oil imports. The government had a low level of oil industry spending, which led to speculation and eventually caused economic decline, thus limiting U.S. policy options in the Middle East (Williams 2).
Three auto manufacturers known as the Big Three dominated the U.S. market since the 1950's. General Motors, Ford, and Chrysler had the entire U.S. market to themselves, but the oil crises put an end to their dominance in U.S. market. American cars had low gas mileage. And so Americans constantly needed to refuel their gas grizzling machines during the oil crises people would wait in long lines to get gas. In Detroit the gas owner would wave a green flag which meant that they had gas. A red flag meant no gas. Sometimes people would go days before they could get gas. Some factories shortened the work week and shopping centers restricted business hours because there was a shortage of oil and it was expensive for business' that transported goods on vehicles that needed refueling. Although, American manufacturers thought Japanese cars meant "inferior quality." American manufactures never thought about producing compact cars, they believed that, "big profits were in full-size products". This belief hurt the Big Three in the long run but opened the doors for Japanese cars. W. Edward Deming, an American brought his ideas about compact, quality, and fuel efficient cars to American manufactures but they thought his ideas were too "egalitarian." Deming took his ideas to Japanese dealers and revolutionized their cars and Japanese cars made their first debut during the oil crises. Japanese cars made an everlasting impression in the international market (Shulman 1).
The energy crisis of 1973 and 1979 was a mistake which the government is still currently dealing with because OPEC is still in control of the petroleum from the Middle East, which means they can increase prices when desired. However, the government has learned from its mistakes as well. The government is producing more fuel efficient cars because the oil price is not going to go down anytime soon. There are many factors that can cause a stir in the oil industry besides high inflation and unemployment, such as a hurricane. Recently the U.S. faced Hurricane Katrina which increased gas prices to five dollars a gallon and in some place nine dollars. The only periods in recent history when the U.S. was not dependent on oil was during the Gulf War and Post September 11th because relationships with the Middle East may have been good at the time. U.S dependence on petroleum imports has been high and growing for over a decade. There are ways to decrease the consumption of oil: higher U.S production of oil, lower consumption caused by substitution, conservation, increased efficiency, and fuel switching, this can all be achieved with Hybrid cars (Williams 2). The 1973 and 1979 oil crises put an end to cheap oil for the U.S.