These policies temporarily curtailed inflation and reduced imports. But in 1973, a brief war broke out between Israel and its neighbors Egypt and Syria. Middle Eastern Arab states retaliated for Western support of Israel by quadrupling the price of oil and suspending the export of oil to the United States for several months. Long lines of cars appeared at American gas stations, which either ran out of fuel or limited how much a customer could buy. A second “oil shock” occurred in 1979 as a result of the revolution that overthrew the shah of Iran, discussed later.
Because the rapidly growing demand for fuel by cars and factories outstripped domestic supplies, by 1973 the United States imported one-third of its oil. Europe and Japan depended even more heavily on oil imports. To promote energy conservation, Congress lowered the speed limit on interstate highways to fifty-five miles per hour, and many public buildings reduced heat and lighting.
The energy crisis of the 1970s drew increased attention to domestic energy resources like oil, coal, and natural gas. While the rest of the economy stagnated, western energy production grew apace. Oil was discovered in Alaska in 1968, and in 1977 a pipeline opened to facilitate its shipment to the rest of the country. Coal production in Wyoming boomed. Western energy companies benefited from the high oil prices set by OPEC—the Organization of Petroleum Exporting Countries.
During the oil crisis of 1973, Americans confronted rising gasoline prices and widespread shortages. Some gas stations closed and were turned to other uses, like this one in Potlatch, Washington, which became a religious meeting hall, the pumps now offering salvation rather than gasoline.
But rising oil prices rippled through the world economy, contributing to the combination of stagnant economic growth and high inflation known as “stagflation.” Between 1973 and 1980, the rate of inflation in developed countries was 10 percent per year, and the rate of economic growth only 2.4 percent, a sharp deterioration from the economic conditions of the 1960s. The so-called misery index—the sum of the unemployment and inflation rates—stood at ro.8 when the decade began. By 1980, it had almost doubled. As oil prices rose, many Americans shifted from large domestically produced cars, known for high gasoline consumption, to smaller, more fuel-efficient imports. By the end of the decade, Japan had become the world’s leading automobile producer, and imports accounted for nearly 25 percent of car sales in the United States.