Panic at the Pump: The Energy Crisis and the Transformation of American Politics in the 1970s

Panic at the Pump: The Energy Crisis and the Transformation of American Politics in the 1970s

by Meg Jacobs

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Overview

An authoritative history of the energy crises of the 1970s and the world they wrought

In 1973, the Arab OPEC cartel banned the export of oil to the United States, sending prices and tempers rising across the country. Dark Christmas trees, lowered thermostats, empty gas tanks, and the new fifty-five-mile-per-hour speed limit all suggested that America was a nation in decline. “Don’t be fuelish” became the national motto. Though the embargo would end the following year, it introduced a new kind of insecurity into American life—an insecurity that would only intensify when the Iranian Revolution led to new shortages at the end of the decade.

As Meg Jacobs shows, the oil crisis had a decisive impact on American politics. If Vietnam and Watergate taught us that our government lied, the energy crisis taught us that our government didn’t work. Presidents Nixon, Ford, and Carter promoted ambitious energy policies that were meant to rally the nation and end its dependence on foreign oil, but their efforts came to naught. The Democratic Party was divided, with older New Deal liberals who prized access to affordable energy squaring off against young environmentalists who pushed for conservation. Meanwhile, conservative Republicans argued that there would be no shortages at all if the government got out of the way and let the market work. The result was a political stalemate and panic across the country: miles-long gas lines, Big Oil conspiracy theories, even violent strikes by truckers.

Jacobs concludes that the energy crisis of the 1970s became, for many Americans, an object lesson in the limitations of governmental power. Washington proved unable to design an effective national energy policy, and the result was a mounting skepticism about government intervention that set the stage for the rise of Reaganism. She offers lively portraits of key figures, from Nixon and Carter to the zealous energy czar William Simon and the young Donald Rumsfeld and Dick Cheney. Jacobs’s absorbing chronicle ends with the 1991 Gulf War, when President George H. W. Bush sent troops to protect the free flow of oil in the Persian Gulf. It was a failure of domestic policy at home that helped precipitate military action abroad. As we face the repercussions of a changing climate, a volatile oil market, and continued turmoil in the Middle East, Panic at the Pump is a necessary and lively account of a formative period in American political history.

Product Details

ISBN-13: 9780809075072
Publisher: Farrar, Straus and Giroux
Publication date: 03/13/2017
Edition description: Reprint
Pages: 400
Sales rank: 930,700
Product dimensions: 5.90(w) x 8.80(h) x 1.00(d)

About the Author

Meg Jacobs teaches history and public affairs at Princeton University. Her first book, Pocketbook Politics: Economic Citizenship in Twentieth-Century America (2005), won the Organization of American Historians’ Ellis W. Hawley Prize, as well as the New England Historical Association’s James P. Hanlan Book Award. She is also the coauthor of Conservatives in Power: The Reagan Years, 1981–1989 (2010).

Read an Excerpt

Panic at the Pump

The Energy Crisis and the Transformation of American Politics in the 1970s


By Meg Jacobs

Farrar Straus Giroux

Copyright © 2016 Meg Jacobs
All rights reserved.
ISBN: 978-0-8090-5847-1



CHAPTER 1

In Search of Oil


IN 1948, a handsome, athletic twenty-four-year-old George H. W. Bush moved his young family to West Texas in search of oil and the American Dream. Bush was not the typical wildcatter. A graduate of Yale and son of a successful Wall Street investment banker and future senator, George could have had his pick of careers. But Poppy, as he was known, traded in his Ivy League comforts for the dust and sandstorms of the Permian Basin. It was there that Bush, albeit with his family's connections, would seek his own fortune. "I am convinced that there is a real opportunity here," Bush wrote when he turned down a job offer from his father's prestigious New York banking firm.


Risky Business

In the summer of 1948, Bush set up home in the small, no-frills town of Odessa, Texas, with his wife, Barbara, and their two-year-old son George. The young Ivy Leaguer sent away for L.L.Bean catalogs, regularly attended the Yale-Princeton game, and went frequently to socialize in the booming cities of Dallas and Houston. But the former U.S. Navy pilot also worked hard to learn the oil business from the bottom up and enmesh himself in Texas living. Sitting in a storefront, he sold drilling equipment made by Dresser Industries for the oil and gas industries. He also acquired on-the-job knowledge in the oil fields and on a Dresser shop floor in California, where he joined the local union. Back in Midland, Texas, Bush decided to go out on his own, forming a company to trade in oil leases and develop new wells.

Bush was in the oil business at the right time and place, given the discovery of large oil reserves in the fabled Spraberry Trend, near Midland. Bush's family was growing — three more sons and two daughters (one of whom died from cancer) — and so was Midland. Along with neighboring Odessa, this town, which sprouted up from nine thousand to sixty-two thousand residents in just a few years, became home to one out of every fourteen oil rigs in the country, and thousands of prospectors and speculators flooded in. Soon the state was responsible for more than a third of all drilling in the country. After seeing the marquee for the 1952 Marlon Brando movie, ¡Viva Zapata!, which chronicled the story of the Mexican revolutionary, Bush named his new company Zapata Petroleum to suggest a swashbuckling spirit.

Demand for oil was skyrocketing. If you could find oil, you could sell it. Oil had started as a source of illumination, but it quickly joined its fellow fossil fuel — coal — to generate power for factories and homes; it was the engine of a mass-consumption revolution based on middle-class consumer industries, with cars leading the way. In 1908, the Ford Motor Company had introduced its first gasoline-powered, mass-produced Model T, and in 1925 this huge corporation was turning out a new Tin Lizzie every ten seconds. By 1950, Americans owned forty million cars, nearly one for every family. With gasoline at twenty-five cents a gallon, Americans took to the roads.

On the surface, these were the boom times of Texas oil. In 1948, Life and Fortune magazines both profiled the new rich oil barons, forever cementing their image as fabulously nouveau riche jet-setting businessmen. Yet underneath the wealth and glamour, the reality was different. Risk, as well as a sense of adventure, was an ever-present part of the business. Each time he bored down into the earth's surface, a wildcatter was placing a bet. On the frontiers of free enterprise, these independent oilmen did much of the exploratory drilling in unproven areas, hoping to find fossil fuels buried deep below. In Texas, as profitable as drilling was, the industry believed that eight out of every nine holes came up dry. Soon after Bush formed Zapata, he explained to his college friend Thomas "Lud" Ashley, a future Democratic congressman from Ohio who had entrusted him with $500 to invest, that any investment was "risky, very risky." "If you elect to ride a wildcat," Bush warned, "I hope you will be prepared for the 100% loss which might occur."

Beyond the inherent risk in searching for oil, there were already indications of bigger problems that were starting to bear down on the industry. Well before the 1973 Arab embargo, even amid the boom years, it was clear that the oil patch could one day have a difficult time supplying sufficient fuel at affordable prices, or at least at prices that Americans wanted to pay. Between 1945 and 1959, production grew by more than 50 percent, but in that same period consumption rose by 80 percent. Since early in the twentieth century, the United States had assumed its steady place as the world's leading producer of oil, first with the Rockefeller discoveries in Pennsylvania and later with the Texas discoveries, starting at Spindletop in 1901, where the first six wells outproduced all existing wells in the East, then in East Texas in 1930, and now in West Texas. The major oil companies that formed after an antitrust suit broke up Rockefeller's trust — Standard Oil of California, Texaco, and Gulf along with what became Exxon and Mobil — were vertically integrated, highly successful corporations, extending their reach over much of the industry, from the wellhead to the gas pump. They were the ones who bought the black sludge when the wildcatters released it from the ground. But 1948, the year Bush arrived, marked the last time that the United States would export more oil than it imported.

As demand was soaring — with new suburbs, new highways, new shiny automobiles — the costs of exploring for new sources of domestic oil were rising. Independents, who continued to do much of the exploration, were searching deeper beneath the ground and farther afield for more and more oil. After a few successful years prospecting in Texas, Bush founded the Zapata Off-Shore Company. The company developed some of the earliest mobile deepwater rigs to drill below the ocean's surface and explore off the coasts of Louisiana, Texas, and California, all of which required enormous capital investments.

As the expense of domestic drilling was mounting, independents were facing increasing competition from the major oil companies' exploration and production of cheaper oil in the Middle East that cost substantially less than domestic oil. In these newly developing oil fields, all under authoritarian regimes, labor costs were dirt cheap with no unions to raise the cost of everything from drilling to producing the steel for pipeline casings. In the desert fields of Saudi Arabia, deposits were closer to the surface and more concentrated, which made them easier and less costly to extract. Indeed, Bush sought to capitalize on this foreign boom, deciding to concentrate his offshore business overseas, and he moved his family to Houston, which was emerging as an international capital of global oil. The Connecticut oilman could do this only with the substantial help of his family bank connections back east.

A couple of years before Bush decided to shift his investments abroad, a Supreme Court decision had struck fear into the hearts of oilmen in Texas and throughout the Southwest and made it clear that the world of Washington policy makers could pose as many risks as a dry hole in an oil patch. In 1954, the Supreme Court heard Phillips Petroleum Company v. Wisconsin, a case brought by the state against Phillips, an independent producer, claiming that natural gas prices were rising and the federal government ought to regulate them. When wildcatters discovered oil, they usually found natural gas too, which, after the construction of a national system of pipelines, supplied electricity and heat to homes and factories in the Mid-Atlantic and the Midwest. Urban residents, especially those who had recently converted from coal to natural gas when their cities hooked up to interstate pipelines, protested loudly, believing rising costs violated what they had understood since the New Deal as their right to cheap electricity and fuel. On the campaign trail in 1932, the Democratic hopeful Franklin Roosevelt had said, "Electricity is no longer a luxury. It is a definite necessity."

The Supreme Court ruled that the Federal Power Commission (FPC), which under the Natural Gas Act of 1938 set the rates for transportation and sale of natural gas through the interstate pipelines to local utilities, also had authority over prices at the wellhead where gas came out of the ground. From here on, the country's several thousand producers would have to sell their product at rates fixed by federal bureaucrats in Washington.

The judgment caused an instant uproar in the Southwest, where oilmen immediately understood the implications of this Supreme Court ruling. A cap on natural gas prices would also keep oil prices down as the two increasingly competed as a source of residential and industrial fuel. They were competitive fuels, often found together in the same wells, and the decision, the oilmen feared, would set a precedent for the government to regulate prices of any commodity. During World War II, Roosevelt's planners, with the famed New Dealer Harold Ickes at the helm, had regulated everything in the oil industry from the fields to the pumps, a job Ickes as head of the wartime Petroleum Administration did with zeal. (In 1943, he published a book chronicling his experiences, which he called Fightin' Oil.) Now it looked as if the bureaucrats were back in business. "If the one can be regulated, where will such regulation stop?" asked lawyers representing the industry. "We should stop this trend to Federal control in our country."

According to George Bush, the Yankee transplant living in Texas, there was one way to stop this trend: vote for the GOP. Only the Republican Party, which had for years fought the regulatory reach of the New Deal, could defend against this federal onslaught. If the independents needed more capital and the ability to raise prices, then the Republicans — the party of free enterprise — could help.

The problem, though, was that since the Civil War Texas, like the rest of the South, had been a one-party, Democratic town. The oil industry had done well by the Democrats, who had provided and protected favorable tax breaks. Nothing was more prized than the depletion allowance, which permitted oil drillers to deduct roughly one-quarter of the value of their revenues from their taxable income. The idea was that a well would dry up over time — literally become depleted — and the tax break offered an incentive to replace what had been used up. After World War I, when it became clear that the modern army and navy ran on oil, the American Petroleum Institute, one of the early trade associations and lobbying organizations, found a sympathetic hearing in Congress, where southern Democrats, with their seniority, controlled the tax-writing committees. But as much as these southerners protected the oil producers, their northern Democratic brethren were committed to defending the interests of their oil-consuming constituents.

Could the GOP save the oil patch? As he was developing his oil business, Bush was also rounding up campaign contributions for Dwight Eisenhower in Midland, Texas. In 1952, Eisenhower was the first Republican to win Texas, in part on the promise of sympathy from Washington toward the oil industry. Ike lent his support to the legislative undoing of natural gas price controls and other pet issues. As Midland County chairman for the 1956 Eisenhower campaign, Bush told local businessmen, "If we hope to see the oil industry's position maintained, and if we expect to get any favorable legislation passed in the next session of Congress, Texas must do its part in supporting the Republican part[y]."

The young Bush understood that the industry could face real opposition from liberal Democrats and even moderate Republicans who, sensitive to consumer interests, fought against rising prices and defended price controls. It was an era of relatively low inflation, but Americans still expected their politicians to protect their pocketbooks. That included Bush's father, Prescott Bush, who as senator, first elected in 1952, came out against legislation to eliminate the FPC's price-fixing authority. He might have been a Republican — indeed, in many ways, he was the archetype eastern establishment Republican, but he represented Connecticut, where consumers cared deeply about the prices they paid for fuel and demanded that their politicians defend them.

The independents had more success in pressing their case in Washington for protection against cheaper Middle Eastern oil. Along with the rising costs of domestic drilling that they feared they could not pass on, this low-priced foreign competition was the big threat. On this front, they received help from President Eisenhower, when they persuaded him to impose import restrictions. Here national security arguments prevailed. In October 1956, before there were supertankers that could carry oil around the coast of Africa, the Suez Canal crisis temporarily shut down shipping from the Middle East. The independents argued that reliance on foreign oil made the United States vulnerable, and in 1959, to their loud applause, Eisenhower established the Mandatory Oil Import Program, setting quotas on foreign oil at roughly 12 percent of domestic production. "There Is No Security in Foreign Oil for the Defense of Our Own Borders," read the letterhead of the Independent Petroleum Association of America, an organization in which George Bush assumed a leadership role.

The major oil companies, who were the ones responsible for developing the Middle Eastern oil fields and shipping their products around the globe, accepted this protectionist policy. They were focused on extending their reach beyond American shores to new markets in Europe and Japan. And they already had their own deal with the U.S. government. Aware of the Middle East's strategic importance in the unfolding Cold War, the government encouraged the development of a close relationship with Saudi Arabia and the formation of the Arabian American Oil Company (Aramco), made up of four of the five major American oil companies. Thus began the concessionary era in which the majors would share 50 percent of the profits with Saudi Arabia, where there had been discoveries of vast reserves, and other oil-rich governments in exchange for the right to produce and distribute oil. The U.S. Treasury Department allowed these corporations to credit these concession payments to foreign governments against their taxable income, which meant they often paid virtually no income taxes at all.

This so-called Golden Gimmick, agreed to by Harry Truman and King Ibn Saud of Saudi Arabia, served their countries' mutual interests. Although it represented a substantial loss of income to the U.S. government, this arrangement facilitated American Cold War aims of containing Soviet influence in this oil-rich region, developing new reserves of oil, conserving Western Hemisphere resources, and facilitating European recovery, where the coal mines and railroad infrastructure had been damaged in wartime and countries were desperate for new sources of fuel. In addition, the channeling of substantial funds into the hands of the Saudi government to pay for this country's modernization helped to offset hostility over American recognition of the new state of Israel in 1948. In 1950, Aramco completed the laying of the Trans-Arabian Pipeline, which facilitated the flow of oil from the region.

American commitment to the free flow of oil from the Middle East became clear in its relationship with Iran. In 1953, the United States helped to orchestrate the overthrow of Mohammad Mossadegh by the CIA and the installation of Mohammad Reza Shah Pahlavi as the absolute monarch. Mossadegh, as the popularly elected prime minister, had fought for the nationalization of the Iranian oil industry and the expulsion of the British oil companies. Fearing Soviet influence in the country and the blocking of Western access to oil, the Eisenhower administration made a commitment to the shah in exchange for his support of ongoing concessions to the multinational oil companies. After the Suez crisis, in what became known as the Eisenhower Doctrine, the United States assumed the role of guarantor of Western-friendly conservative regimes in the region through military and economic assistance in exchange for favorable treatment of the majors.

Big Oil, as it was now coming to be known, was solidifying its reach as a global empire. In 1963, Bush traveled to the Middle East to arrange contracts between the oil governments, including Kuwait, and the majors. The business was still risky: in 1965, Zapata lost an offshore rig to Hurricane Betsy. But the market for oil, including among oil-thirsty American allies in Europe and Japan, was growing. These were massive companies at the top of the corporate hierarchy. In 1957, Exxon, Gulf, and Mobil all had assets greater than General Motors, with several others, including Standard Oil and Texaco, also worth over $1 billion. The Seven Sisters (the five American firms along with Royal Dutch Shell and British Petroleum) controlled a substantial majority of all non-Communist production. Their operations extended from the oil fields through the tankers and refineries down to the local gas stations.


(Continues...)

Excerpted from Panic at the Pump by Meg Jacobs. Copyright © 2016 Meg Jacobs. Excerpted by permission of Farrar Straus Giroux.
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Table of Contents

Introduction: An Energy Pearl Harbor 3

I Stuck in the Past

1 In Search of Oil 13

2 Coming Up Dry 49

II Washington Conservatives

3 Turning Right 89

4 Finding a Way Out 123

III Divided Democrats

5 Freeze a Yankee 161

6 Hot Summer Mad 196

IV Blaming Government

7 Running on Empty 235

8 I Can't Drive Fifty-Five 271

Conclusion: A New Project Independence? 309

Notes 315

Acknowledgments 353

Index 355

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