What If The Oil Crisis of 1979 Never Occurred?

The Actual History

The 1979 oil crisis marked the second major petroleum shortage of the 1970s, following the 1973 oil crisis. Unlike its predecessor, which stemmed primarily from an OPEC embargo, the 1979 crisis originated from political upheaval in Iran, one of the world's largest oil exporters at the time.

The Iranian Revolution began in January 1978 with widespread protests against Mohammad Reza Pahlavi, the Shah of Iran. By January 1979, the Shah had fled the country, and on February 1, Ayatollah Ruhollah Khomeini returned from exile to establish an Islamic republic. The political instability severely disrupted Iranian oil production, which plummeted from 6 million barrels per day in 1978 to merely 1.5 million barrels by 1979.

This dramatic reduction in supply—approximately 7% of global production—triggered panic in global oil markets. The fear of continued supply disruptions prompted hoarding and speculation, further exacerbating the crisis. Oil prices more than doubled, soaring from approximately $15 per barrel in 1978 to over $39 per barrel ($142 in 2023 dollars) by 1980.

The crisis intensified when, in November 1979, Iranian students seized the American Embassy in Tehran, taking 52 Americans hostage in what became known as the Iran Hostage Crisis. This 444-day standoff further destabilized oil markets and strained international relations.

In the United States, the oil shock contributed significantly to the already challenging economic conditions. The economy was struggling with "stagflation"—a painful combination of high unemployment, slow economic growth, and soaring inflation that reached 13.5% by 1980. Long lines formed at gas stations as fuel shortages spread across the country. President Jimmy Carter's administration implemented fuel allocation controls and odd-even gas rationing (based on license plate numbers) in many states.

Carter addressed the nation on July 15, 1979, in what became known as the "Crisis of Confidence" or "Malaise" speech, calling the energy crisis "the moral equivalent of war." He proposed a sweeping energy policy and established the Department of Energy, while urging Americans to conserve energy and reduce consumption.

The crisis accelerated initiatives in energy conservation, fuel efficiency, and alternative energy sources. Corporate Average Fuel Economy (CAFE) standards were strengthened, pushing automakers to develop more fuel-efficient vehicles. Interest in solar power, nuclear energy, and other alternatives increased substantially.

The economic and political consequences were far-reaching. The crisis contributed to Carter's defeat in the 1980 presidential election to Ronald Reagan, who promptly removed price controls on oil and natural gas. The Federal Reserve, under Paul Volcker, implemented drastic monetary tightening to combat inflation, triggering a severe recession in the early 1980s but eventually breaking the back of inflation.

Globally, the crisis prompted industrialized nations to establish strategic petroleum reserves and diversify their energy sources. Japan and European countries, heavily dependent on imported oil, accelerated their transition toward more energy-efficient economies. The crisis also solidified OPEC's power as a global economic force, though internal divisions would later weaken the cartel's cohesion.

By 1986, oil prices had collapsed again due to decreased demand and increased production from non-OPEC sources, but the economic and political patterns established during the 1979 crisis would influence energy policies and international relations for decades to come.

The Point of Divergence

What if the Oil Crisis of 1979 never occurred? In this alternate timeline, we explore a scenario where the dramatic disruption in global oil markets that defined the late 1970s was avoided, significantly altering the economic, political, and technological trajectory of the following decades.

Several plausible variations could have prevented the crisis:

The most likely divergence centers on the Iranian Revolution. Had Mohammad Reza Pahlavi, the Shah of Iran, responded differently to the early protests in 1978, perhaps by implementing genuine political reforms rather than alternating between brutal crackdowns and ineffective concessions, he might have retained power or at least ensured a more orderly transition. A more moderate government—perhaps a constitutional monarchy or secular democracy—could have maintained oil production levels, preventing the supply shock that triggered the crisis.

Alternatively, Western intelligence agencies might have better assessed the revolutionary threat in Iran. With more accurate intelligence, the United States could have exerted appropriate diplomatic pressure on the Shah for gradual reforms while preparing contingencies to stabilize oil markets if unrest occurred. President Carter might have worked with Saudi Arabia and other OPEC members preemptively to ensure they would increase production to offset any Iranian shortfalls.

A third possibility involves OPEC itself. The organization could have been more proactive in stabilizing markets. If Saudi Arabia, with its vast production capacity, had immediately increased output to compensate for Iranian shortfalls, the price spike might have been moderated. Perhaps in this timeline, King Khalid and Crown Prince Fahd recognized the danger of extreme price volatility to long-term oil demand and acted more decisively to calm markets.

Regardless of the specific mechanism, in this alternate timeline, global oil production remains relatively stable through 1978-1980. While the Iranian political situation might still have evolved toward some form of revolution, the critical difference is that it happens without causing severe disruption to global oil supplies. Oil prices rise moderately but avoid the dramatic doubling that occurred in our timeline.

With this point of divergence established, we can explore how the absence of the 1979 oil shock would have reshaped the economic, political, and technological landscape of the late 20th century and beyond.

Immediate Aftermath

Economic Stability in the United States

Without the 1979 oil shock, the most immediate effect would be on the U.S. economy, which was already struggling with the lingering effects of the 1973 oil crisis and resulting stagflation. In our timeline, the 1979 crisis exacerbated these problems dramatically, but in this alternate history:

Inflation Moderation: Inflation, which reached a peak of 13.5% in 1980 in our timeline, would likely have been several percentage points lower without the oil price spike. While still high by historical standards due to monetary policies and the aftermath of the 1973 crisis, it might have peaked at 8-9% before beginning a more gradual decline.
Consumer Confidence: The absence of gas lines, rationing, and price spikes preserves consumer confidence. The American public, while still concerned about economic issues, doesn't experience the same psychological shock and sense of vulnerability that characterized our timeline.
Industrial Production: Energy-intensive industries such as manufacturing, chemicals, and transportation avoid the severe disruptions they experienced in our timeline. This helps maintain employment in these sectors and prevents some of the accelerated deindustrialization that occurred in the early 1980s.

Different Trajectory for the Carter Administration

President Jimmy Carter's presidency would have followed a markedly different course:

Energy Policy: Without the crisis atmosphere, Carter's comprehensive energy policy, announced in his July 1979 "Crisis of Confidence" speech, would likely have been less dramatic and more incremental. The Department of Energy, established in 1977, would have focused more on long-term planning rather than crisis management.
Political Capital: Carter avoids the perception of helplessness that damaged his presidency during the actual crisis. Without the Iran hostage situation (which might have been avoided or significantly different without the revolution), Carter wouldn't face the daily reminder of American impotence that the hostage count provided in news broadcasts.
1980 Election: While still facing challenges from inflation and economic stagnation, Carter enters the 1980 election campaign with significantly better prospects. Whether this would have been enough to defeat Ronald Reagan remains debatable, but the race would have been much closer. A Carter victory or a single-term Reagan presidency becomes plausible in this timeline.

Global Economic Effects

The absence of the 1979 oil shock would have had far-reaching effects beyond the United States:

European Economies: Western European nations, heavily dependent on imported oil, avoid the severe economic disruptions of 1979-1980. Countries like Italy, France, and the United Kingdom experience less severe inflation and unemployment spikes.
Japanese Economic Miracle: Japan, which was particularly vulnerable to oil shocks due to its near-total dependence on imported energy, continues its robust economic growth without the disruption that occurred in our timeline. The "Japanese economic miracle" extends further into the 1980s without the setback of the energy crisis.
Developing Economies: Many developing nations, which were devastated by the combination of high oil prices and the subsequent interest rate hikes, fare better in this timeline. Countries like Brazil and Mexico, which took on massive debt partly in response to the oil crisis, face less severe debt crises in the early 1980s.

Altered Energy Markets and Policies

The structure and dynamics of global energy markets would have evolved differently:

OPEC's Position: Without the dramatic price spike of 1979-1980, OPEC doesn't experience the same peak of power. Oil prices remain more moderate, perhaps in the $18-25 per barrel range (in then-current dollars) rather than reaching $39 as they did in our timeline.
Conservation Measures: While some efficiency improvements proceed due to the lingering effects of the 1973 crisis, the urgency behind fuel economy standards, building insulation requirements, and other conservation measures is reduced. The Corporate Average Fuel Economy (CAFE) standards might still increase but at a more gradual pace.
Alternative Energy: Research into solar, wind, and other alternative energy sources continues but without the same sense of urgency. The significant investments in renewable energy during the late 1970s would be more modest, potentially delaying some technological developments.

Middle East Geopolitics

The geopolitical landscape of the Middle East would have followed a significantly different course:

Iran-Iraq Relations: Without the specific form of the Iranian Revolution that occurred in our timeline, the Iran-Iraq War might have been avoided or taken a different form. Saddam Hussein, who opportunistically invaded Iran in September 1980 partly to take advantage of post-revolutionary chaos, might not have found the same opening.
Saudi Arabian Policy: Without the need to dramatically increase production to compensate for Iranian shortfalls, Saudi Arabia's role as the swing producer in oil markets would have evolved more gradually. The Saudi-U.S. relationship, while still important, might not have deepened as significantly as it did during the crisis years.
Regional Stability: The absence of the specific form of the Iranian Revolution could have led to a more stable, if still tense, regional environment. Islamic fundamentalism would still have been a rising force, but without the dramatic example of Iran's revolution, its political expression might have developed along different lines.

The immediate aftermath of avoiding the 1979 oil crisis would thus have created a world with more economic stability, different political trajectories, and altered energy priorities—setting the stage for long-term divergences that would become increasingly pronounced over the following decades.

Long-term Impact

Economic Transformations

The absence of the 1979 oil crisis would have fundamentally altered global economic development through the 1980s and beyond:

Monetary Policy and Inflation

The Volcker Shock: In our timeline, Federal Reserve Chairman Paul Volcker implemented dramatic interest rate hikes (reaching 20% in 1981) to combat inflation exacerbated by the oil crisis. Without the crisis, monetary tightening would likely have been more gradual. Interest rates would still have increased but perhaps peaked at 12-15% rather than 20%.
Recession Severity: The severe "double-dip" recession of 1980-1982 would have been significantly milder. Unemployment, which reached nearly 11% in 1982, might have peaked at 7-8%, causing less structural damage to manufacturing communities and the middle class.
Debt Crisis: The developing world debt crisis, triggered partly by the combination of high oil prices and skyrocketing interest rates, would have been less severe. Countries like Mexico, Brazil, and Argentina would have faced challenges but avoided the "lost decade" of the 1980s, potentially maintaining stronger economic growth trajectories.

Industrial Development Patterns

Manufacturing Sector: American manufacturing, while still facing challenges from globalization and technological change, would have experienced a less abrupt decline. The combination of more moderate interest rates, lower energy costs, and sustained consumer demand would have allowed for a more gradual transition, preserving some industrial capacity that was lost in our timeline.
Japanese Economic Trajectory: Without the disruption of the oil crisis, Japan's economic expansion continues more robustly through the 1980s. The Plaza Accord of 1985 (or its equivalent in this timeline) might have addressed a Japanese economy that was even stronger relative to the United States, potentially leading to different outcomes in currency relationships.
European Economic Integration: European economies, less damaged by the oil shock and its aftermath, might have pursued economic integration more aggressively. The European Monetary System, established in 1979, would have operated in a more stable environment, potentially accelerating progress toward what would eventually become the euro.

Energy Policy and Technology

The different energy landscape would have produced significant technological and policy divergences:

Fossil Fuel Development

Oil Exploration: Without the price spike that made marginal oil fields economical, exploration in challenging environments like deep offshore and the North Sea would have proceeded more gradually. Consequently, proven oil reserves might have grown more slowly in the 1980s and 1990s.
Natural Gas: The transition toward natural gas as a cleaner alternative to oil and coal would have progressed more slowly without the urgent push away from oil dependency. Infrastructure development for natural gas would have followed a more gradual trajectory.
Coal Renaissance: The "coal renaissance" of the early 1980s, when many utilities and industrial users switched from oil to coal, would have been less pronounced. This would have resulted in different patterns of carbon emissions and potentially less sulfur dioxide pollution in the industrialized world.

Alternative Energy Development

Nuclear Power: The nuclear power industry, already struggling with cost overruns and safety concerns after the Three Mile Island accident in March 1979, would have faced a different landscape. Without the oil crisis highlighting energy security, public and political support for nuclear power might have waned even faster than it did in our timeline.
Renewable Energy: The significant but brief push for renewable energy during the Carter administration would have been more modest. Early developments in wind and solar technology would have progressed more slowly, potentially delaying their eventual cost competitiveness by 5-10 years.
Energy Efficiency: Improvements in energy efficiency would have followed a more gradual path. Automobiles, appliances, and buildings would have become more efficient over time, but without the same regulatory push and market incentives that the crisis created.

Political Realignments

The political landscape both domestically and internationally would have evolved along markedly different lines:

United States Politics

Reagan Revolution: If Carter had won re-election in 1980, or if Reagan had served only one term due to a less favorable economic environment for his policies, the "Reagan Revolution" would have been significantly muted. Supply-side economics might never have gained the same traction, and deregulation would have proceeded more cautiously.
Partisan Realignment: The political realignment that saw many blue-collar workers shift toward the Republican Party might have developed differently. Without the severe industrial disruption of the early 1980s, traditional Democratic constituencies might have remained more loyal to the party.
Environmental Politics: Without the stark choice between energy security and environmental protection highlighted by the crisis, environmental politics might have evolved along more cooperative lines. The adversarial relationship between environmental advocates and industry that crystallized in the 1980s might have been less pronounced.

International Relations

Soviet Union and Cold War: The Soviet Union, which benefited from high oil prices as a major exporter in our timeline, would have faced economic challenges sooner without the windfall of 1979-1980. The economic strains that eventually contributed to Soviet collapse might have accelerated, potentially bringing forward the end of the Cold War.
Middle East Dynamics: Without the specific form of the Iranian Revolution and subsequent Iran-Iraq War, Middle Eastern geopolitics would have followed a significantly different trajectory. Political Islam would still have been a rising force, but its expression and influence would have developed along different lines.
China's Opening: China's economic opening to the West, beginning with Deng Xiaoping's reforms in 1978, would have occurred in a more stable global economic environment. This might have accelerated China's initial growth phase, as it would have faced fewer obstacles in export markets not suffering from oil-induced recessions.

Environmental and Climate Considerations

By 2025, the cumulative effect of different energy paths would be evident in environmental outcomes:

Climate Change Awareness: Without the dramatic focus on energy security prompted by the oil crisis, climate change might have emerged more slowly as a political issue. The energy efficiency gains and early renewable energy development spurred by the crisis contributed to awareness of alternatives to fossil fuels.
Carbon Emissions Trajectory: Global carbon emissions would likely have followed a different trajectory. The absence of the crisis might have meant less coal use in the 1980s (a positive for emissions) but also less emphasis on efficiency and alternatives (a negative). The net effect is complex but would have produced a different emissions pathway.
Environmental Regulation: The Reagan administration's aggressive rollback of environmental regulations might have been less severe without the perceived need to prioritize energy production over environmental protection. Environmental policy might have evolved more continuously rather than experiencing the sharp reversal of the early 1980s.

Technological and Cultural Shifts

The broader technological and cultural landscape would reflect these altered conditions:

Digital Revolution: The information technology revolution of the 1980s and 1990s might have proceeded with slightly different timing. A more stable economic environment could have meant more consistent investment in research and development, potentially accelerating some aspects of the digital transition.
Automobile Industry: Without the urgent push toward fuel efficiency, American automakers might have been slower to address the competitive challenge from Japanese manufacturers. Consequently, the restructuring of the auto industry might have been more gradual but ultimately more profound.
Suburban Development: Patterns of urban and suburban development, heavily influenced by energy costs, would have evolved differently. The trend toward larger homes and longer commutes that resumed after energy prices fell in the mid-1980s might have continued uninterrupted from the 1970s.
Consumer Culture: The brief flirtation with conservation and simplicity that characterized the late 1970s would have been less pronounced. The cultural shift toward conspicuous consumption that marked the 1980s might have evolved more gradually, without the sharp reaction against perceived scarcity.

By 2025, these divergences would have compounded to create a recognizably different world—not necessarily better or worse overall, but one with different strengths, vulnerabilities, and priorities shaped by the absence of a crisis that significantly influenced our own timeline's development.

Expert Opinions

Dr. James Bartlett, Professor of Economic History at Columbia University, offers this perspective: "The 1979 oil crisis served as a critical inflection point that accelerated certain economic trends while reversing others. Without this shock, I believe we would have seen a more gradual transition from the Keynesian economic consensus of the post-war period to the market-oriented approach that dominated the 1980s and beyond. The Federal Reserve would still have tackled inflation, but without the extreme urgency the oil crisis created. This would have meant a less severe recession in the early 1980s and potentially a more balanced approach to deindustrialization. The manufacturing sectors in the Midwest and Northeast would have declined more gradually, possibly allowing for more successful adaptation and retraining programs. The dramatic wealth inequality that began to accelerate in the 1980s might have followed a more moderate trajectory."

Dr. Fatima Al-Sayegh, Chair of Middle Eastern Studies at the London School of Economics, provides an international perspective: "The absence of the 1979 oil crisis would have fundamentally altered the political economy of the Middle East and OPEC. Without the price spike, Saudi Arabia wouldn't have accumulated the same enormous financial reserves that funded both domestic development and international influence operations throughout the 1980s and beyond. The relationship between OPEC members would have evolved differently without the experience of managing this crisis together. Most significantly, without the specific form of the Iranian Revolution that our timeline experienced, the sectarian tensions between Sunni and Shia powers might not have become as pronounced. The proxy conflicts that have characterized the region since the 1980s might have taken very different forms or been avoided altogether. I suspect we would still see political Islam as a major force, but its development would have been more diverse and less polarized without the example of Iran's theocratic state."

Dr. Thomas Henderson, Senior Fellow at the Institute for Energy Economics and former advisor to the Department of Energy, focuses on technological implications: "The 1979 crisis created a brief but significant window for alternative energy development that wouldn't have existed otherwise. In this alternate timeline, I believe renewable energy technologies would have developed more slowly without the initial push of crisis funding. Solar photovoltaics, wind turbines, and other alternatives might have reached cost parity with fossil fuels 5-10 years later than in our timeline. Conversely, nuclear power might have followed a different trajectory. Without the crisis coinciding with Three Mile Island, there might have been more patience for addressing nuclear power's challenges rather than the effective moratorium on new plants that emerged in the U.S. The most significant difference, however, would likely be in energy efficiency. The dramatic improvements in vehicle fuel economy, building insulation standards, and industrial processes that were accelerated by the crisis would have developed more gradually. By 2025, we might have ended up in roughly the same place technologically, but the path would have involved fewer dramatic breakthroughs and more incremental improvements."