What Caused the Oil Crisis of 1979 and How It Changed the Industry Forever

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The 1970s was a transformative time for the oil and gas industry. New sources of supply were developed, demand was growing and the world was changing. The first sign of impending stress came in 1973 when Arab nations imposed an oil embargo on the United States and other countries that had supported Israel in the Yom Kippur War. The embargo caused a sudden spike in oil prices, which quadrupled the cost of crude oil within months. By 1975, oil prices had fallen again, but they remained higher than they had been before the crisis. In 1979 another crisis hit when Iran cut off exports of oil because of tensions with Iraq over war with neighboring Gulf states. This time there was no quick fall in prices, and oil soon climbed above $40 per barrel. It kept rising to more than $80 by 1981 — a level not seen again until 2014. An international effort led to peace between Iran and Iraq, which removed one obstacle to increased production from both countries. The price fell below $30 by 1985 as excess supply returned to the market…

1979 Was a Time of Transformative Change for the Oil and Gas Industry

The oil crisis of 1979 was a seminal event in the history of the oil and gas industry. It was the first time that the world had to grapple with the idea of oil shortages. The shock of rising prices sparked a wave of new investment in exploration and development that reshaped the industry. As prices rose, oil companies were forced to search for new sources of supply. They brought new technology to bear on old oil fields, employing the first use of horizontal wells and other techniques that would reshape the industry in the years to come. They discovered vast new pools of oil in the North Sea, the Gulf of Mexico and elsewhere that would make the world much less dependent on Middle Eastern crude. Oil companies also started to think about the environmental impact of what they did.

The Dangers of Prolonged Dependence on Fossil Fuels

Oil and gas are finite resources, and their availability at current consumption rates is limited to less than 100 years. Oil is a non-renewable energy source, and once depleted, will no longer be available. To meet the future energy demands of society, alternative sources of energy must be identified and developed. In addition, conservation and increased efficiencies must be employed to reduce the amount of energy needed. The importance of energy in our economy has prompted a major effort to develop alternative sources of energy. This effort involves both governmental and commercial activities. A major problem facing the effort to develop alternative sources of energy is finding the capital to finance the research and development activities.

OPEC’s Move to Consolidate Power Through Dominance of Supply

OPEC was formed in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Other countries including Libya, Qatar, the United Arab Emirates, Algeria and Nigeria also joined OPEC later. The organization has always been dominated by the interests of its largest producer, Saudi Arabia. It has used many tactics to maintain its position as the dominant producer and exporter of oil. OPEC producers have historically employed a policy of producing as much oil as possible in order to keep the price of oil low. OPEC’s goal was to increase their total income by increasing the volume of oil sold. The increase in supply caused an over-supply of crude oil in the marketplace. This resulted in a decrease in the price of crude oil.

New Sources of Supply Were Developed in Response to the Crisis

OPEC’s oil embargo and the subsequent increase in oil prices led to an effort to discover new sources of oil within the United States. Production on federal lands increased by 70 percent between 1974 and 1979. The U.S. Department of Energy was formed in 1977 to oversee the nation’s energy resources. In 1980, the Department of Energy created a new Advanced Research Projects Agency (ARPA) to fund basic research and development in technologies such as solar energy, wind power, and hydrogen fuel cells. In response to the oil crisis, the federal government provided tax incentives to companies engaged in oil and gas exploration. This resulted in the discovery of large amounts of oil in the United States. It also contributed to the conversion of the automobile industry to gasoline powered internal combustion engines. Inside the United States, unconventional oil and gas resources were developed with the help of new technology. New technology allowed producers to use horizontal wells and fracking to extract oil and natural gas from sources that previously could not be tapped. In addition, the use of remote operated vehicles allowed operations to be controlled from a distance.


The oil crisis of 1979 was a transformative event in the history of the oil and gas industry. This crisis was the first time that the world had to grapple with the idea of oil shortages. The shock of rising prices sparked a wave of new investment in exploration and development that reshaped the industry. The discovery of new sources of supply within the United States and in other parts of the world has helped make the world less dependent on Middle Eastern crude. The transformation of the industry that was set in motion by the crisis of 1979 has not yet been completed. New sources of supply have been developed, demand has been growing and the world has changed. However, none of these factors has changed as radically as the oil and gas industry itself.

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