1979 Energy Crisis

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1979 Energy Crisis: Definition, Causes, and Impact

Overview

The 1979 energy crisis was the second major oil shock of the 1970s (after 1973). Triggered by political turmoil in Iran, it produced a sharp rise in crude-oil prices, short-term supply disruptions, widespread panic buying, and gasoline rationing in parts of the United States. Although global oil output fell only modestly, market disruption and policy responses amplified the shock and its economic effects.

Key takeaways

  • The crisis followed the Iranian Revolution and led to a near doubling of crude-oil prices over about a year (to roughly $39–40 per barrel).
  • Panic buying and long lines at gas stations occurred despite only a modest drop in production.
  • Several U.S. states implemented gasoline rationing (odd/even license-plate rules).
  • The episode accelerated demand for smaller, more fuel-efficient vehicles and pushed utilities and governments toward alternative energy sources.
  • OPEC’s effective market share declined substantially in the years after the crisis.

What happened

Political upheaval in Iran reduced crude-oil exports and disrupted global supply lines. In the spring and early summer of 1979, U.S. gasoline and diesel shortages were acute: consumers faced long waits and, in some states, rationing based on license-plate numbers. Worries about heating-oil availability for the 1979–1980 winter were particularly serious in New England.

Although total oil output fell by a relatively small percentage, the short-term disruption and market psychology produced large price spikes and consumer panic.

Causes

  1. Geopolitical disruption

  2. The Iranian Revolution removed a major petroleum exporter from stable production, tightening world markets.

  3. U.S. policy and regulatory responses

  4. Price controls and regulatory directives constrained refinery behavior and gasoline allocations at a critical time.

  5. The U.S. Department of Energy required some large refiners to sell crude to smaller refiners that lacked sufficient processing capacity, which further complicated supply and delayed distribution.

  6. Monetary environment

  7. Reluctance by policymakers to tighten monetary policy quickly contributed to rising inflation late in the decade, which amplified the rise in energy and consumer prices.

Short-term impacts

  • Rapid increase in pump prices and consumer panic buying.
  • Gasoline rationing in several states (including California, New York, Pennsylvania, Texas, and New Jersey).
  • Heightened concern over winter heating fuel supplies, especially in colder regions.

Longer-term effects and responses

  • Automotive shifts: Increased demand for compact, fuel-efficient cars and smaller engines in the U.S.
  • Energy diversification: Utilities and governments invested more in alternatives (nuclear power, other fuels) and energy R&D.
  • Consumption and market share changes: Global oil consumption fell in the six years after the crisis, and OPEC’s share of the global market declined from around 50% in 1979 to roughly 29% by 1985.

Legacy

The 1979 energy crisis underscored the vulnerability of oil-dependent economies to geopolitical shocks and policy missteps. It prompted behavioral, industrial, and policy changes—greater emphasis on energy conservation, shifts in vehicle design and consumer preferences, and diversification of energy supply—that reshaped energy markets through the 1980s and beyond.