The 1970s oil shocks began with quietly peaking wells, not just embargoes
Most people remember the 1970s energy crisis as a story of embargoes and petrol queues. Underneath it ran a slower shift: American oil output had already peaked around 1970, leaving the richest economies leaning on foreign suppliers just as two Middle Eastern upheavals choked the flow.
West Germany's oil production topped out in 1966, and Venezuela's and America's followed in 1970, with Iran's in 1974. Imports into the United States had been climbing sharply, straining its balance of trade, and worldwide output per person soon began falling too. So when the 1973 Yom Kippur War prompted Arab producers in OAPEC to proclaim an embargo on the United States, and the 1979 Iranian Revolution disrupted supply again, prices had plenty of room to spike. Separately, OPEC members agreed to push world prices up to protect their real incomes.
Oddly, the 1973 embargo barely dented the number of barrels actually moving, since only a few countries imposed it on a few others. Much of the price surge came from the fear of shortage rather than shortage itself. The political damage was real, though: European governments and Japan tried to distance themselves from American policy in the Middle East, opening a rift within NATO. Economically, the shock combined with the 1973 to 1974 stock market crash into the first event since the Great Depression with such lasting effects. Stagnant growth married to rising prices earned a new word, stagflation. America's GDP shrank 3.2 percent in the 1973 to 1975 recession, and unemployment peaked at 9 percent in May 1975.
Not everyone lost. Norway, Mexico and Venezuela gained, and Texas and Alaska boomed while much of the United States stagnated. The crises also pushed the first real move toward energy-saving technology.
Prices topped out in 1980 at over 35 dollars a barrel. Then conservation and slower growth bit: oil consumption in the United States, Europe and Japan fell 13 percent between 1979 and 1981. Headlines in 1981 announced a glut, a word Exxon's chief dismissed as American exaggeration. Yet prices slid for six years, ending in a 46 percent drop in 1986.
Source: 1970s energy crisis
