Historiography: The Shock of Oil

Whenever I research and write out one of these Historiographies, one such event pops up in telling each story.

The OPEC Oil Crisis.

It is important to note this for many reasons. One, the impact of this event on "western nations" – read: The United States of America – ran very deep in the psyche of many people. This not only changed the thinking of the automotive industry, but of consumers across the board. Some might say it left a scar on this country's psyche. Others felt it may have steered this country towards understanding consumption and striking the balance between needs and wants.

Before any of these impacts are spelled out, we should look at why American motorists found themselves in a crisis based on their dependency on fossil fuels.

To understand the events of the mid-1970s, we must understand who the players were.

First, there is the Organization of Petroleum Exporting Countries. They are a consortium of oil producing nations that join to discuss the state of the petroleum industry and to set production standards across all member states. It was established in 1960 with just five countries – Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.

Venezuela?!? Yes, this country produced oil for years to the Americas and beyond. Before Presidents Chavez and Maduro came to power, Venezuela produced more than enough oil to give them a stronger economic hold in the Americas – mainly serving the USA's needs.

Also, OPEC is headquartered in Vienna, Austria. A neutral place to set oil production policy and share ideas, indeed.

By 1971, OPEC's membership grew to include other oil-producing countries, such as Algeria, Indonesia, Libya, Nigeria, Qatar and the United Arab Emirates. OPEC also welcomed Ecuador as a member in 1973. By this time, it has truly become a global organization.

To understand how impactive OPEC became, they are responsible for 44% of all oil production in the world, with 73% of all proven oil reserves. These were based on 2017 statistics, but imagine having that kind of power over all oil producing nations to be able to dictate policy and standards in the industry.

Since before the establishment of OPEC, there had been a monopoly on oil production by multinational corporations – such as Royal Dutch Shell, British Petroleum, Standard Oil of California, and so forth. It got to the point where government's of oil producing countries were challenged by the oil companies in regards to pricing based on production. In this case, the oil came with a price cut on oil produced in two of the founding countries, in which their oil ministers were angry over. These countries felt exploited by the industry enough to create OPEC.

With OPEC in place, the oil companies would have to present price and production proposals to the member states for agreement. This would be a consultative proposal that would have to be reviewed by representatives – mainly oil ministers – of the member nations. If approved, everyone agrees to meet these prices and production levels in the specter of mutual cooperation.

Because you have politicians – the oil ministers – representing these member states, global politics will find their way into some of the decisions made by OPEC. This was exactly the case in 1973. Israel was involved in a war with Egypt and Syria over territorial disputes. The Yom Kippur/Ramadan/October War deepened the rift in the Middle East that prompted further action by those states on the side of Egypt and Syria. They looked to one country as a further instigator in this war – the USA.

A group of OPEC members created an alliance inside of the organization to respond to the aftermath of the war with Israel. This group, known as OAPEC, consisted of the majority of Middle Eastern members of OPEC, with the addition of the governments of Egypt and Syria, began to refuse to export oil to several countries in the “west.” Among those countries affected by the embargo was the USA.

The refusal of oil exports caused a drain on the businesses providing petroleum products to their biggest customers. The immediate cause was the increase in the price of crude oil, as well as a shortage of this product for refinement and distribution to retailers.

The story could be as simple as this. But, it is not. What the Saudis and Egyptians originally planned was using oil as a weapon against those who supported Israel during the war of October 1973. This weapon would intensify if the USA and other supporters of Israel would stop aiding them through this war. President Richard M. Nixon did not stop sending aid to Israel. The oil was simply cut off from ports in the Middle East.

On October 26 of 1973, the Yom Kippur/Ramadan/October War ended. The oil embargo – rather a "shock" – was already expanding to include other countries, such as Rhodesia and South Africa. It became clear that the weapon of oil was going to hurt the affected countries hard. That is, as long as Israel troops were present on lands they took in the aftermath of the 1973 conflict.

The weapon of oil certainly hit consumers right where it counts – the wallet. For example, trading of crude oil was at $3.00 a barrel prior to the Israeli conflict. By the end of the embargo in March of 1974, that price skyrocketed to $12.00 a barrel. Pump prices rose accordingly.

The price of gasoline was not the only thing affecting the USA economy. The reliance on oil from outside the USA was a result of declining production within this country. A century ago, the USA cultivated a lot of its own fossil derived petroleum from many locations across the country. The posr-World War II surge of automobile sales caused plenty of concern as what was considered infinite under our soil and oceans became somewhat finite. To counterbalance surging demand for inexpensive gasoline, USA oil companies wound up importing the extra fuels from overseas – mainly from the Middle East.

While Americans continue their insatiable appetite for gasoline to fuel their very large automobiles and high horsepower V8s, The US Treasury and the Nixon Administration did something that would change the valuation of the Dollar – remove the Gold Standard from it. It used to be that the true cost of the US Dollar was based on the price of gold. By 1971, that valuation changed and gave the currency its own value with the golden safety net.

Why mention this? The "first oil shock" helped trigger a stock market crash and a subsequent recession in the USA that was simply bound to happen. The timing could not have been too much to bear upon the American consumer.

The USA was not the only country dealing with this oil shock. Canada, the Netherlands, Portugal, South Africa, Rhodesia, the United Kingdom and Japan were affected. Some of the countries tried to maneuver around US foreign policy, others were stuck in the cross-hairs of multinational oil companies and Middle Eastern politics.

With the supply of oil from the Middle East shut off, oil companies had a limited supply of petroleum to distribute. That certainly helped consumers, who were driving inefficient cars – both addicted to gasoline. We were also addicted to the automobile, as we would not live without one despite the limited supply of fuel.

With every addiction, there had to be an intervention. First, the US government created the Federal Energy Office to see about a temporary solution to get through this oil shock. In finding a solution to appease the fear of the motoring public, one solution did come out of this office – rationing.

With gas stations closing due to empty tanks and pumps, one wondered if there was a way to placate the nation's addiction to gasoline and automobiles. Rationing was one solution to get through the oil shock. Motorists were told to look at their license plates as a guide to which days they can go to the gas station. The last number of the plate dictated the day on the calendar to do so. Odd numbered plates went on odd number days, even numbered plates went on even number days. Personalized plates went accordingly.

This was the rule back home in California. Our even-numbered massive 1972 Oldsmobile Ninety-Eight found itself in line with all of the other even-numbered vehicles to get our precious fuel up of premium leaded gasoline. Mom knew the drill as our friend who ran the Mobil station two blocks away tried his best to keep his tanks filled for customers. The Shell and Chevron stations on the same corner – of Victory and Reseda Boulevards – also had their struggles with fulfilling supply and demand based on this rationing scheme.

Another form of rationing seen in this country was the use of flags and colors. Green flagged days meant all motorists were welcomed to fill up their tanks. If there was a yellow flag out, that meant only commercial vehicles can fuel up. You did not want to be caught on a red flag day. When that flag went up – there was no gas available for anyone.

Other measures went into place as a way to help Americans conserve gasoline. In our heyday as a country, we could drive our cars to our heart's content at 70 MPH. In 1974, the national speed limit was reduced to 55 MPH. The Federal government explained that having a lower national speed limit could help improve fuel economy in most automobiles. For a 1972 Oldsmobile Ninety-Eight with a 455 cubic-inch V8 that got 11 MPG prior to the lowering of the speed limit, would probably improve to 12-13 MPG afterward…

Meanwhile, many cities and metropolitan areas tried their best to get commuters out of their automobiles. By the time the oil shock was done, actual plans to modernize and expand public transit systems simply were just beginning to be implemented. While the Bay Area Rapid Transit system was about to complete its complete rail plan, other heavy rail projects in Atlanta and Washington, DC are only nearing completion. It would take a vote in 1982 for Los Angeles to finally get their rail system approved.

The only solution for many cities was to increase the number of buses. Rather, to increase service where it was badly needed. That did not happen until 1975 when the Southern California Rapid Transit System began to rebrand the bus service in the San Fernando Valley as the GRID system. Part of the GRID was two bus lines – one running on Reseda Boulevard towards downtown Los Angeles; the other running on Victory Boulevard between Burbank and the west end of the Valley.

However, the OPEC Oil Crisis/Shock/Embargo did prompt another major change in our love of the automobile. Automakers in this country and importers of other vehicles from abroad saw an opportunity from this crisis. Because of the oil embargo, consumers were asking for more efficiency from their next automobile. They could not bear to buy another 220-inch full-sized sedan that can only muster 12 MPG on the highway.

The solution came in a surge of small car sales. The domestic automakers made their share of small cars – the Chevrolet Vega, Ford Pinto and AMC Gremlin. However, neither of them were as reliable and efficient as a similarly-sized automobile from Japan.

In turn, automobiles from Japan were starting to shed their negative image of their past vehicles. Somehow, consumers found favor in the likes of the Honda Civic, Toyota Corolla, and Datsun B210. Granted, they were not as solidly built as their American counterparts, but they did turn superb fuel economy figures – 25 MPG or more.

One response from Detroit was to downsize their offerings on an average of ten inches shorter in length. That meant offering smaller V8s and six-cylinder engines under their hoods. They even looked at front wheel drive as a solution for their smaller cars. Eventually, most cars made in North America switched to front-drive as an efficient solution reversing years of traditional car design and production.

When the oil shock ended in 1974, it was not the end of the problems that still persisted globally. The instability of the Middle East lent to another political episode – the Iranian Revolution. Because Iran was a major oil producer, the Revolution paused production while the country sorted itself out – including a full nationalization of its energy industry. The cut-off of oil production created another oil shock in 1979, again affecting motorists in the USA.

If one thing came out of 1979 that would have a lasting legacy on today's motorist – it would be fuel prices. The Carter Administration began a phased deregulation of oil prices. By 1980, West Texas Sweet Oil Crude saw its barrel pricing jump 250 percent. When the hostages from the American Embassy in Tehran were released, the price of oil reached almost $40.00 a barrel.

The notion of using oil as a weapon had been argued so many ways in subsequent conflicts. Remember the Gulf War of 1991 when Iraq started to invade Kuwait? There were many who questioned the USA's involvement in that region assuming that it was to protect the oil trade coming from both countries. The same assumptions were made again when our country set up another coalition into Iraq in the aftermath of the attacks of September 11, 2001.

It all points to one thing: the global addiction to oil has not eased one bit. The lessons from each oil crisis/embargo/shock are there to comprehend and understand but only serve as a blip in history. Yet, the 1973 Oil Crisis did make a remarkable change in this country in terms of how we approach our own automotive industry for the long term.

But, did we learn our lessons from 1973? You decide.

All photos by Randy Stern