798 Chapter 30 Running on Empty, 1975–1991
The Oil Crisis
While most Americans watched,
transfixed, as the events of Watergate
interred the Nixon presidency, few
were aware that a battle on the other
side of the world was about to trans-
form their lives. On October 6,
1973, the eve of Yom Kippur, the
Jewish Day of Atonement, Egypt
and Syria attacked the state of Israel.
Six years earlier Israel had trounced
the Egyptians with humiliating ease;
it had then seized the Sinai peninsula
and the West Bank of the Jordan
River, an area including Jerusalem.
But now Egypt’s armored divisions
roared into the Sinai and threatened
to slice Israel in half; Syrian troops
advanced against Israel farther north.
Israeli Prime Minister Golda
Meir pleaded with President Nixon for additional
arms and aircraft. He responded vigorously, promis-
ing that “every last goddamn airplane” would be sent
to Israel. “We are going to be condemned by the
Arabs one way or the other,” Nixon concluded. The
United States immediately airlifted scores of fighter
planes and other desperately needed material to Israel.
The Israelis recrossed the Suez Canal, cut Egyptian
supply lines, and forced Egypt’s president, Anwar
Sadat, to capitulate. But the Arab world then aimed
its biggest weapon squarely at the United States: It
cut off oil shipments to the West.
Deprived of Middle Eastern oil, the American
economy sputtered. The price of oil rose to $12 a
barrel, up from $3. This sent prices soaring for nearly
everything else. Homes were heated with oil, factories
were powered by it, utility plants used it to generate
electricity, and farm produce was shipped to markets
on gas-fueled trucks. Nylon and other synthetic fibers
as well as paints, insecticides, fertilizers, and many
plastic products were based on petrochemicals. Above
all else, oil was refined into gasoline. By the time of
the Yom Kippur War, American car owners were dri-
ving more than a trillion miles a year, the major rea-
son why the United States, formerly a major oil
exporter, imported one-third of its oil. The Arab oil
embargo pushed up gas prices; service stations inter-
mittently ran out of gasoline; long lines formed at
those that remained open.
In the spring of 1974, Henry Kissinger negotiated
an agreement that required Israel’s withdrawal from
some territory occupied since the 1967 war; the Arab
nations then lifted the oil embargo. But the principal oil
exporting nations—Venezuela, Saudi Arabia, Kuwait,
Iraq, and Iran—had learned a valuable lesson: If they
limited production, they could drive up the price of oil.
After the embargo had ended, their cartel, the
Organization of Petroleum Exporting Countries
(OPEC), announced another price increase. Gasoline
prices doubled overnight.
American automakers who had scoffed at bul-
bous Volkswagen “bugs” and tiny Japanese “boxes”
now winced as these foreign competitors claimed the
new market for small, fuel-efficient, front-wheel-drive
cars. American auto companies were unable to
respond to this challenge because their contracts with
the United Automobile Workers (UAW) linked wages
to consumer prices, which had floated upward with
the price of oil. As production costs rose, manufactur-
ers needed to sell more of their behemoth models,
loaded with expensive options such as air condition-
ing, power windows, and stereo systems. They could
not profitably sell the small cars the public craved. (In
1982, when Ford belatedly entered the front-wheel
drive market, it lost $40 on each car sold.) Because
the automobile industry stimulated so many other
industries—steel, vinyl, glass, rubber—the nation’s
manufacturing sector was soon in trouble.Ford as President
Gerald Ford replaced Nixon as president in the sum-
mer of 1974, just as the economy was beginning to
deteriorate. At first, the country greeted Ford with a
collective sigh of relief. Most observers considered
Ford unimaginative, certainly not brilliant. But he
was hardworking, and—most important under the
circumstances—his record was untouched by scandal.After the Arab oil embargo, gasoline became so scarce that customers were limited to buying
ten gallons at a time. This led to long lines at the pumps.