Chapter 32: The Adjustment

How things change with time. While in the 1950s and 60s, inexpensive oil had fueled economic growth, in the 70s, oil seemed expensive and insecure. Also, before the 70s, it was oil exporters who complained that their sovereignty was being impaired by oil, but in the 70s, it was the industrial countries that found their sovereignty, security, and foreign policies threatened by oil. Since the hydrocarbon man was unwilling to surrender his newfound love of petroleum, adjustments to the new realities had to be made.

Countries sought to secure their own energy sources after the embargo. While the mix for various countries may have been different, the elements were virtually the same and included alternative fuels, diversified sources of oil, and conservation. The French, for example, rapidly developed nuclear power, returned to coal, and emphasized conservation.

The threat to oil companies now came from the importing countries, not the exporting countries. Gas allowances and foreign tax credit were rescinded as the companies became increasingly unpopular. Some people insinuated that the oil companies had planned the crisis to raise their profits, and the government even threatened “divestiture”- breaking up the oil companies' integrated structure so that each stage was a different business. Oil companies had become the enemy of the people.

Already by mid-decade, profits dropped back down in 1975 due to weakened demand, increased royalty taxes, and the removal of tax exemptions at home. Profits increased slightly over the next few years but remained constant with inflation. Between government policy attempts to control prices, and companies adapting to changing acceptance by culture, domestic oil policy in the 1970s was somewhat marked by divisive, angry, bitter, confused debate on price controls and company practices and policies.

Ironically compared to today’s sentiment, coal was seen as a possible solution to the oil crunch. Actions during the 70s included the Trans-Alaskan pipeline (TAPS), an increase in 1975 of automobile fuel efficiency standards, and the establishment of a strategic petroleum reserve that was part of the fuel efficiency bill. This reserve is the same one that President Biden has tapped in an attempt to stabilize oil prices.

With the exit of the Nixon Administration and arrival of the Carter Administration, there was an attempt to remove the price controls on oil and natural gas, as well as put greater emphasis on the use of coal. Their top priority was to remove the oil subsidy and let domestic oil that was under price control rise to the world market price. It also sought to encourage the development of alternative sources of energy (e.g., solar) and to improve competition in the electricity sector.

The public that had gotten accustomed to the hydrocarbon lifestyle, however, did not think there was a crisis, and there was significant push-back on the new policy. As a reaction to the embargo, price hikes, and expectation of increases, a frantic search for new oil ensued, and the cost for everything related to drilling doubled relative to its value in 1973. Companies were determined to avoid nationalization at all costs and redirected their exploration and production to the industrial and “friendly” nations of the Western world (US, Canada, British Isles and Norway). The 70s saw rapid expansion of Alaska, the North Sea, and even Mexico was making a comeback.

The companies also embarked on “diversification” in non-oil businesses. As examples, Mobil bought Montgomery Ward (a now defunct department store), Exxon went into office automation, ARCO went into copper, and Gulf bid for the Ringling Brothers and Barnum & Bailey Circus.