A drop in oil production in the wake of the Iranian Revolution led to an energy crisis in 1979. Although the global oil supply only decreased by approximately four percent, the oil markets' reaction raised the price of crude oil drastically over the next 12 months, more than doubling it to . The sudden increase in price was connected with fuel shortages and long lines at gas stations similar to the 1973 oil crisis.
In 1980, following the onset of the Iran–Iraq War, oil production in Iran fell drastically. Iraq's oil production also dropped significantly, triggering economic recessions worldwide. Oil prices did not return to pre-crisis levels until the mid-1980s.
Oil prices after 1980 began a steady decline over the next 20 years, except for a brief uptick during the Gulf War, which then reached a 60% fall-off in the 1990s. Mexico, Nigeria, and Venezuela's major oil exporters expanded their production during this time. The Soviet Union became the largest oil producer in the world, and oil from the North Sea and Alaska flooded the market.
Iran
In November 1978, a strike consisting of 37,000 workers at Iran's nationalized oil refineries reduced production from per day to about . Foreign workers left the country. However, by bringing navy personnel into crude oil production operations, the government fixed short-term disruptions and by end of November the output came back to almost normal level.
On January 16, 1979, the Shah of Iran, Mohammad Reza Pahlavi, and his wife, Farah Pahlavi, left Iran at the behest of Prime Minister Shapour Bakhtiar, who sought to calm the situation. After the departure of the Shah, Ayatollah Khomeini became the new leader of Iran.
Effects
Other OPEC members
The rise in oil prices benefited a few members of the Organization of Petroleum-Exporting Countries (OPEC), which made record profits. Under the new Iranian government, oil exports later resumed but production was inconsistent and at a lower volume, further raising prices. Saudi Arabia and other OPEC nations, under the presidency of Mana Al Otaiba, increased production to offset most of the decline, and by early 1979 the overall loss in worldwide production was roughly four percent.
The war between Iran and Iraq in 1980 caused a further 7 percent drop in worldwide production and OPEC production was surpassed by other exporters such as the United States as its member nations were divided amongst themselves. Saudi Arabia, a "swing producer", tried to gain back the market share after 1985, increasing production and causing downward pressure on prices, making high-cost oil production facilities less profitable.
United States
The oil crisis had a mixed impact on the United States. Some regions of the country are oil-producing regions, and other regions are oil-consuming. Richard Nixon imposed price controls on domestic oil. Gasoline controls were repealed, but controls on domestic US oil remained.
The Jimmy Carter administration began a phased deregulation of oil prices on April 5, 1979, when the average price of crude oil was US. Starting with the Iranian revolution, the price of crude oil rose to over the next 12 months (its all-time highest real price until March 3, 2008). Deregulating domestic oil price controls allowed U.S. oil output to rise sharply from the large Prudhoe Bay fields, while oil imports fell sharply.
Although not directly related, the near-disaster at Three Mile Island on March 28, 1979, also increased anxiety about energy policy and availability. Due to memories of the oil shortage in 1973, motorists soon began panic buying, and long lines appeared at gas stations, as they had six years earlier. The average vehicle of the time consumed between two and three liters (about 0.5–0.8 gallons) of gasoline an hour while idling, and it was estimated that Americans wasted up to of oil per day idling their engines in the lines at gas stations.
The amount of oil sold in the United States in 1979 was only 3.5 percent less than the record set for oil sold the previous year. A telephone poll of 1,600 American adults conducted by the Associated Press and NBC News and released in early May 1979 found that only 37 percent of Americans thought the energy shortages were real, nine percent were not sure, and 54 percent thought the energy shortages were a hoax.