ABSTRACT

Twice during the 1970s -- the Arab Oil Embargo of 1973-74 and the tight oil market of 1978-79 associated with the political upheaval in Iran -- the U.S. economy experienced severe shocks as a result of massive price increases for imported oil. By 1980 the price for imported crude oil had increased to nearly twenty times the price in 1970 (about $40 per barrel in 1980 as compared to about $2 per barrel in 1970). The increased reliance on foreign sources for oil because of reduced domestic supply and increased domestic demand exacerbated the situation further. The effects on economic performance have been extremely serious. The rapid rise in energy prices was a major cause of the severe recession of 1974-75 and has contributed to sluggish economic performance since 1975. And prices will continue to rise as a result of the elimination of domestic oil price controls in 1981 and the planned phase-out of domestic natural gas price controls by 1985.