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History of Oil in the United States The United States uses twenty-five percent of the world’s total energy output. In the late 1990s, 85% of this energy came from oil. Oil is easier to obtain, transport, and burn than coal. For many years the United States was able to supply its own growing petroleum needs. However, by World War II, American energy demands had expanded so much that the nation began to rely on foreign sources of oil. This dependence on foreign oil has led to current economic problems, which can be further understood by looking at the historical relationship between oil and Americans. The economic problems of the late 1960s and early 1970s had several causes, one of which was American dependency on foreign oil. During the 1960s, America received much of its petroleum from the oil-producing countries of the Middle East. Nations there that export oil include Saudi Arabia, Iran, Kuwait, the United Arab Emigrates, and Libya. Saudi Arabia is the leading exporter. In 1950, the oil-producing countries began to raise prices. Then, in 1960, Middle Eastern oil- producing countries formed the Organization of Petroleum Exporting Countries, or OPEC. OPEC is a cartel. A cartel is a group of industrial businesses, often operating in different countries, that combine to control the price, production, and sale of a commodity or product. The membership of OPEC, a cartel formed to control oil, has continued to grow, and now includes nations outside of the Middle East. For many years, OPEC members quarreled among themselves and did little to control prices. In the late 1960s, OPEC began to gradually raise prices. Then in 1973, the Yom Kippur War broke out, with Israel against Egypt and Syria. When the United States sent massive military aid to Israel, its longtime ally, the Arab OPEC nations responded by cutting off all oil sales to the United States. When OPEC resumed selling its oil to the United States in 1974, the price had quadrupled. This sharp rise in oil prices worsened the problems of inflation. President Carter considered the energy crisis the most important issue facing the nation. A large part of the problem, the president believed, was America’s reliance on imported oil. On April 18, 1977, during a fireside chat, Carter urged his fellow Americans to cut their consumption of oil and gas. “The energy crisis…is a problem…likely to get progressively worse through the rest of this century…Our decision about energy will test the character of the American people…This difficult effort will be the ‘moral equivalent of war,’ except that we will be uniting our efforts to build and not destroy.” - Jimmy Carter In addition to appealing to the American public, Carter presented Congress with more than 100 proposals on energy conservation and development. Representatives from oil and gas-producing states fiercely resisted some of the proposals. Automobile manufactures also lobbied against gas- rationing provisions. Out of the battle came the National Energy Act. The Act placed a tax on gas-guzzling cars, removed price controls on oil and natural gas produced in the United States, and extended tax credits for the development of alternative energy. In late 1979, the price jumped again as a result of an Iranian revolution. Iran, which produces 10 percent of the world’s oil supply, became hostile to some Western nations. The new government in Iran reduced production and raised the price of oil. The war broke out between Iraq and Iran, leading to the destruction of refineries, further jeopardizing oil exports from the Persian Gulf region. 1979 was a turning point for OPEC. In that year, OPEC countries received $280 billion in oil revenue. The high price of their oil, however, caused some countries (including the United States) to try and reduce their dependence on OPEC oil. Countries increased domestic exploration for oil. Within five years, non-OPEC countries increased their production of oil by 20 percent. Research into other forms of energy, such as solar power, nuclear power, and gasohol, increased sharply. Gasohol is a fuel made from 10 percent alcohol and 90 percent gasoline. Due to the increase in domestic drilling and the National Energy Act, U.S. dependence on foreign oil has eased slightly by 1979. However, the price of oil remained high. High oil prices encouraged consumers to use energy more efficiently. Consumer demand for high- mileage cars increased. Many people improved the insulation in their homes to lower heating costs. World-wide oil consumption declined by 6% between 1979 and 1984. The changes in the oil market caused many countries to build up a surplus of oil. Finally, in 1986, oil prices fell from over $30 a barrel to $10 per barrel. After this sharp fall, prices began to increase slightly. In 1986, OPEC oil reserves were less than one-fifth what they had been in 1979. Some thought that OPEC might fall apart, but since the 1980s the price of oil has continued to rise. In addition, OPEC countries control approximately two-thirds of the world’s known oil reserves. Recently the issue of American dependence on oil has emerged again as a necessary topic to address. In 2001, President Bush revealed his energy plan. In the plan, he proposed loosening regulations on oil and gas exploration within the United States, a review of gas mileage standards, and a $4 billion dollar tax credit for the use of hybrid cars that use a combination of gas and battery power. The plan also stressed the president’s commitment to drill for oil in Alaska.
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