Back To CourseHistory 104: US History II
14 chapters | 111 lessons | 10 flashcard sets
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For Americans, the 1970s represented a decade of economic stagnation, unusually high unemployment and constant financial concern. Presidents Nixon, Ford and Carter all attempted to remedy the daunting economic conditions of the decade, but they were all largely unsuccessful. One of the main culprits responsible for the inert American economy was oil production in the Middle East.
The United States had reached its peak of domestic oil production around 1970. The decade that followed witnessed a dramatic decrease in domestic oil production, yet oil consumption continued to rise. The United States was able to offset its own limited production by importing oil from the Middle East due to an agreement with the Organization of Petroleum Exporting Countries, or OPEC, which was an organization consisting of several Middle Eastern nations to control oil prices. Unfortunately, this meant that OPEC controlled the fate of the United States' energy consumption and, essentially, a part of the American economy. As you will see, in 1973, OPEC, for a number of reasons, drastically raised the price of oil which placed a heavy strain on the American economy.
As mentioned above, 1970 represented the peak of oil production in the United States. Simultaneously, President Nixon decided it was in the nation's best interest to remove the United States from the international gold standard, which eliminated the requirement that the dollar had to be backed by gold. Now, why is this important? Simply put, the American dollar was the most powerful currency in the world; it was the basis for all international pricing and transactions.
For example, a barrel of oil produced by OPEC was based off the value of the American dollar. With the dollar no longer required to be backed by gold, its value was fluid. Angry over the decision to remove the dollar from the gold standard and its loss of net profits, OPEC decided to change the value of a barrel of oil from the American dollar to gold. This led to a significant increase in the cost of a barrel of oil for the United States.
The largest economic setback for the United States came in 1973. October 6 marked the beginning of the Yom Kippur War in the Middle East, which witnessed Syria and Egypt attack Israel. Nixon refused to allow the nation to collapse under the pressure of Syria and Egypt. He therefore authorized Operation Nickel Grass to deliver economic and military aid to Israel. Incensed by Nixon's decision to support Israel, OPEC authorized an oil embargo that had devastating effects on the United States economy.
On October 16, the oil embargo went into effect. The price of a barrel of oil rose by nearly 70% to roughly $5 a barrel. This may seem rather low considering in our time we have seen oil well over $100 a barrel, but you must consider the period where wages and earnings were relatively low. Eventually, OPEC nations agreed to a reduction in oil production in correspondence with the embargo. The price for oil eventually reached $12 a barrel in 1974.
The limited production of oil, coupled with the rising price of a barrel, resulted in an international recession. The effects of the recession were felt on the American home front as both inflation and unemployment skyrocketed. Many historians agree that the period of economic instability from 1970 to 1973 represented the worst financial distress the United States had seen since the Great Depression.
Rising inflation and unemployment were two large aspects of the OPEC oil embargo, but Americans faced additional struggles throughout 1973 and 1974 due to the incident. Gas rationing was the most prolific side effect. Congress decided to ration the amount of gasoline Americans could purchase in order to conserve oil and limit the amount of oil being imported from the Middle East.
As a result, Americans were limited to acquiring gasoline via the following system: if an individual had an even number as the last digit of his or her license plate, then that person was allowed to obtain gasoline on even-numbered days in the calendar year and vice-versa for odd-numbered plates. It was a noble attempt at conserving gasoline, however many gas stations had a limited amount of product to sell. This caused long lines at the pumps with no guarantee that the consumer would have the ability to acquire gasoline.
Concurrently, the cost of consumer products steadily rose. Remember, many of the products which you and I use are derived from oil. Rubbers, plastics, chemicals, papers and waxes all come from the manipulation of oil. Consumers in the 1970s felt the influx in price on all of these products without a corresponding rise in income.
Additionally, Americans were forced to begin purchasing smaller vehicles to consume less gasoline, reasonably monitor their use of household energy (recycling became a large staple during this period) and reduce the speed in which they drove (55 mph became the national highway speed limit during the period). The Bee Gees song Stayin' Alive was truly synonymous with the American effort to survive the economic despair of the 1970s.
By March 1974, OPEC's embargo of oil had come to a conclusion after an agreement was worked out at a Washington Oil Summit. Unfortunately, the effects of the embargo and the fluctuating dollar were continuously felt throughout the remainder of the 1970s. In 1976, irritated by the fluctuation of the American dollar, OPEC once again issued an embargo of oil. Fortunately, this embargo did not last long as President Carter threatened to remove America from the international oil standard and begin the process of finding new forms of energy. America dodged a bullet temporarily until 1979.
The year 1979 marked the beginning of the Iranian Revolution in the Middle East. The protests, demonstrations and fighting in Iran helped curb oil production in the region and precipitated an international energy crisis which was felt on the American home front. The price on a barrel of oil rose from roughly $15 to close to $40 by mid-year. Americans once again feared energy shortages and flooded gas stations. Long lines and angry pedestrians forced the Carter Administration to find an alternative to Middle Eastern oil.
As a result, Carter increased domestic drilling and began eliminating price controls on oil. He also encouraged Americans to responsibly consume energy; instead of raising the thermostat, put on a sweater! The president even went as far as issuing the Carter Doctrine, which called for military action against those who subverted the United States' right to oil.
Fortunately, the saber-rattling of the Carter Administration was never implemented as President Reagan finally solved the energy crisis in the 1980s by reducing the United States' reliance on OPEC, finding new sources of energy domestically and abroad and forming rivalries between OPEC nations. Energy costs were reduced in the 1980s, as were inflation and unemployment.
The 1970s were mired by a period of economy uncertainty, which stemmed largely from the international energy market. Beginning in 1973, the Organization of Petroleum Exporting Countries (OPEC) issued an embargo on Middle Eastern oil. This was done in response to President Nixon removing the American dollar from the gold standard, which impacted the price of a barrel of oil and subsequently lowered OPEC profits, as well as the United States' intervention in the Yom Kippur War.
The price for a barrel of oil skyrocketed, eventually reaching $12 a barrel in 1974. Americans were forced to ration gasoline by only purchasing the product on specific days, as well as monitoring their general consumption of the limited good. Unfortunately, while the embargo ended in 1974, inflation and unemployment steadily rose through the rest of the decade.
The year 1979 marked the beginning of the Iranian Revolution and, ultimately, the rise in oil costs. A barrel of oil reached over $40 dollars during the year and Americans were forced once again to ration gasoline. President Carter attempted to curb the energy and economic crisis, but it was not until President Reagan took office in 1981 that America resolved the oil monopoly of OPEC while reducing inflation and unemployment.
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Back To CourseHistory 104: US History II
14 chapters | 111 lessons | 10 flashcard sets