Energy

The early 1970s witnessed a rapid change in the United States’s attitude toward energy consumption. Through the 1950s and 1960s Americans had become accustomed to expanding energy consumption with little concern about cost or availability. Beginning in 1971, however, the Organization ol Petroleum Exporting Countries (OPEC) began to raise the price of oil and then initiated an oil embargo on the United States in 1973.

Energy Consumption by Major Source, 1949-2007

Biomass

¦ ¦  ¦ ¦ Natural gas

---Coal  Nuclear electric power

..... Hydroelectric power  —Petroleum

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This embargo coincided with a weakening U. S. economy and resulted in high inflation and fuel rationing, which brought into question the United States’s dominance, since 1945, of the world economy. The dependence on oil from the Middle East and the severity of the economic crisis brought into sharp relief the ability of the United States to determine its own domestic economic and political agendas. While the crisis was eventually overcome, it raised a number of questions, in particular the issues of national security tied to Middle East politics, the domestic economy’s relationship to the world economy, and the viability of the reliance on oil.

At heart was the ability of the United States to maintain an independent, yet powerful, role in the global arena. A number of factors contributed to the energy crisis. On August 15, 1971, President Richard M. Nixon announced a new economic policy to respond to a faltering economy. As well as implementing a range of wage and price controls, Nixon imposed a 10 percent surcharge on all imports, as well as revoking the U. S. commitment to sell gold to other central banks at $35 an ounce, thereby taking the dollar off the gold standard. OPEC countries, concerned with the adverse effects on oil revenue, began to raise prices, especially as the dollar began to depreciate against the price of oil. The effect on the domestic price of fuel was compounded as American oil companies began to raise their own prices to protect their profits.

These difficulties were compounded when the United States supported Israel against Arab nations in the Yom Kippur War in 1973. OPEC responded by halting the supply of oil to the United States, Western Europe, and Japan. This embargo, which began on October 16,

1973,  caused the price of oil to rise to unprecedented levels and aggravated an already weak U. S. economy. Long queues for gasoline, the introduction of rationing, and accelerated inflation brought home to many Americans the United States’s precarious dependence on foreign oil. The decision by President Nixon in December 1973 not to switch on the lights on the national Christmas tree to conserve energy was a symbolic confirmation of a national crisis.

With the ending of the oil embargo on March 18,

1974,  the crisis appeared to be over. Despite the continued high price of oil and the fragile nature of Middle East politics, consumption quickly returned to pre-1973 levels. A natural gas shortage during the winter of 1976-77, however, brought energy to the forefront of national politics once again, when President James Earl Carter, Jr., declared a national emergency on February 2, 1977. During 1977 Carter announced a series of energy conservation measures and on August 4, 1977, Congress passed the Department of Energy Organization Act. The new U. S. Department of Energy was opened on October 1, 1977, with former secretary of defense James R. Schlesinger as its first secretary. Events in the Middle East, however, once again took control of U. S. attempts to regulate energy consumption. The civil war in Iran in 1979, in which the shah, who had been a longtime ally of the United States, was ousted, caused severe problems between OPEC and the United States. The disruption to oil production and the complications of political allegiances resulted in OPEC’s increasing the price of oil. OPEC announced an immediate price increase of 14.5 percent and, by June 1979, raised the average price of a barrel of oil by more than 50 percent. President Carter addressed the nation on July 15, outlining his proposals to deal with the new energy crisis. Central to Carter’s plan was the need for energy conservation at home, the development of new sources of energy and a reduction in the reliance on imported oil, and deregulation of domestic oil prices. Although Congress deregulated oil in 1980, domes-

Tic oil companies raised their prices, causing another large increase in gasoline prices.

In the 1980s, as the United States increased its own domestic production of oil and attempted to improve end-user efficiency, prices returned to more moderate levels. Apart from a brief price increase during the Persian Gulf crisis in 1990-91, OPEC has managed to stabilize the price of oil, although in late 1999 OPEC cut production, thereby raising the price of gasoline in the United States. The issue of energy emerged at the forefront of domestic policy again in 2000 as deregulation of California’s electricity market led to market manipulation by suppliers, a spike in prices, and rolling blackouts. California’s troubles highlighted continuing problems with supplying consumers’ energy needs.

In 2005 and 2006 a number of factors contributed to a rise in oil prices. World oil production remained nearly stagnant in the face of rising demand from the United States and Asia. Continuing instability in oil-producing regions such as the Middle East and Nigeria also contributed to rising prices. In addition, Hurricane Katrina badly damaged the United States’s domestic oil industry in the Gulf of Mexico, putting even greater pressure on the market. A paper presented by Robert Hirsch, a Department of Energy expert, argued that the price increases in 2005 and 2006 may have represented the peak of world oil production. Hirsch predicts continuing supply problems and higher

U. S. Oil Production and Imports

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Year

- Production -----Imports

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U. S. Petroleum Imports 2007, by Country of Origin

Source: U. S. Energy Information Administration @ Infobase Publishing

Prices. Others, such as economist Edward Luttwak, have argued that instability in oil-producing regions has resulted in significant underestimation of oil reserves and suggest that these unknown reserves will help stabilize prices. Still others, including oil market analyst Michael Lynch, contend that the entire theory of a peak in oil production is overly simplistic and faulty and, therefore, has no relevance for predicting oil prices. In any case, the 2005-06 price increases led the United States to mandate greater energy self-sufficiency and investment in alternative energy technologies, in hopes of heading off possible long-term price escalation that could have severe ripple effects on the entire economy. However, recent oil price decreases in 2008-09, due to the global economic recession, have led some to question whether alternative energy can compete with cheap oil.

See also automobile industry; economy; foreign POLICY; inflation; IrANIAN HoSTAGE CRISIS.

Further reading: CRS Report for Congress. Energy Policy. Available online. URL: Http://digital. library. unt. edu/govdocs/crs/permalink/meta-crs-7840:1. Accessed December 30, 2008; U. S. Department of Energy. Available online. URL: Http://www. energy. gov/. Accessed December 30, 2008.

—Stephen Hardman and Amy Wallhermfechtel