1975 State of the Union Address

Arab Oil Embargo

Speech

By: Gerald R. Ford

Date: January 15, 1975

Source: Ford, Gerald R. "1975 State of the Union Address." 〈http://www.fordlibrarymuseum.gov/library/ speeches/750028.htm〉 (accessed February 23, 2006).

About the Author: Gerald R. Ford was sworn into the office of the President of the United States on August 9, 1974 after President Richard Nixon resigned. Ford served as the House Minority Leader from 1965 to 1973. He grew up in Grand Rapids, Michigan and starred on the University of Michigan football team. After completing his undergraduate studies, Ford attended Yale Law School. During World War II, he served in the U.S. Navy and earned the rank of lieutenant commander. Ford won the Republican nomination for the Presidency in 1976, but lost the election to Jimmy Carter.

INTRODUCTION

The Arab-Israeli conflict has affected international politics since the inception of the state of Israel in 1948. In the 1970s, the conflict reached global proportions as the oil-producing nations in the Arab world, operating as a cartel under the Organization of Petroleum Exporting Countries (OPEC), halted its production and supply of oil meant for the western countries. As a result, the western nations spiraled into a gas shortage. The significance of the Arab oil embargo of 1973 was more than political. The embargo forced nations to acknowledge their dependence on foreign oil, seek alternate energy resources, and enact public policies to reduce oil consumption.

At the close of World War II, the Zionist movement gained enough support for the creation of a Jewish homeland. By 1948, the Mandate for Palestine, by which the British had administered the region, was terminated by the United Nations (UN) Resolution 181. As a result, the Jewish inhabitants of the region declared their independence and the statehood of Israel. Arab nations rejected the state of Israel while western powers acknowledged the new country. After the British left the newly formed state, several Arab nations, including Egypt, Syria, Iraq, Lebanon, Jordan, and Saudi Arabia, declared war on Israel. Invasions by Egyptian, Syrian and Jordanian forces began the Israeli War of Independence. The armistice for this war, signed in 1949, partitioned additional land to Israel than originally agreed to by the United Nations resolution. By 1967, the Cold War between the United States and the Soviet Union was in full force. Many Arab countries enjoyed military and financial support from the Soviet Union, while the U.S., Britain, and France continued to support Israel. The 6-day war occurred in June of 1967 as a response to the actions of Egyptian President Gamal Abdel Nasser who closed the straits of Tiran to Israeli shipping and expelled UN peacekeepers. In response, Israel launched attacks on the Egyptian air force and began an occupation of Sinai and Gaza, as well as the West Bank and Golan Heights. Tentative peace was established through UN Resolution 242. However, many Arabs, including those within the Palestinian Liberation Organization (PLO), rejected the terms of the resolution. As a result, on October 6, 1973, Egyptian and Syrian forces launched an attack on Israel during the Jewish holy day of atonement. Both the U.S. and the Soviet Union aided in supplying their respective allies with arms. In an effort to respond to the U.S. and western powers' support of Israel during this war, the oil-producing nations under the cartel of OPEC reduced their production of oil and halted their commerce with those nations—thus resulting in the Arab oil embargo of 1973.

Meanwhile, in the United States, several events and policy changes prior to the embargo led to an increased consumption of oil, which resulted in the embargo creating a deeper impact on the nation. Policies designed to protect the environment as well as economic policies also led to and increased reliance on oil. Both the Clean Air Act and the Mine Safety Act created greater regulations that increased the cost to mine coal. As a result, the industry was unable to meet the growing demands for energy. In addition, local governments blocked the building of alternate energy resources, such as nuclear power, in campaigns known as "Not in My Back Yard." The federal government also created policies that affected the demand for oil. An oil import quota system, which was initially designed to reduce the amount of imported oil, included price controls. These price controls provided a disincentive for domestic investment in new reserves and the replacement of those depleted. The price controls also affected the production of natural gas. Before 1973, the U.S. regulated the natural gas market and kept the price artificially low by selling below market values. This reduced incentives for producers to open new fields. Consumers in regulated markets were forced to switch to oil due to a lack of supply.

Large, gas-hungry vehicles made up a sizable portion of this demand increase. In a 1974 position paper, the Environmental Protection Agency (EPA) cited that "of total increase in demand for gasoline in the past five years, two-thirds is attributable to additional automobiles being on the road. 23 percent is due to more miles being driven per car." According to the EPA, the demand for crude oil imports from Arab nations increased from 0.38 million barrels per day to 1.1 million barrels per day. This was due to the 1971–1972 overall increase by 69 percent of energy supplied by oil.

PRIMARY SOURCE

… Economic disruptions we and others are experiencing stem in part from the fact that the world price of petroleum has quadrupled in the last year. But in all honesty, we cannot put all of the blame on the oil-exporting nations. We, the United States, are not blameless. Our growing dependence upon foreign sources has been adding to our vulnerability for years and years, and we did nothing to prepare ourselves for such an event as the embargo of 1973.

During the 1960s, this country had a surplus capacity of crude oil which we were able to make available to our trading partners whenever there was a disruption of supply. This surplus capacity enabled us to influence both supplies and prices of crude oil throughout the world. Our excess capacity neutralized any effort at establishing an effective cartel, and thus the rest of the world was assured of adequate supplies of oil at reasonable prices.

By 1970, our surplus capacity had vanished, and as a consequence, the latent power of the oil cartel could emerge in full force. Europe and Japan, both heavily dependent on imported oil, now struggle to keep their economies in balance. Even the United States, our country, which is far more self-sufficient than most other industrial countries, has been put under serious pressure.

I am proposing a program which will begin to restore our country's surplus capacity in total energy. In this way, we will be able to assure ourselves reliable and adequate energy and help foster a new world energy stability for other major consuming nations.

But this Nation and, in fact, the world must face the prospect of energy difficulties between now and 1985. This program will impose burdens on all of us with the aim of reducing our consumption of energy and increasing our production. Great attention has been paid to the considerations of fairness, and I can assure you that the burdens will not fall more harshly on those less able to bear them.

I am recommending a plan to make us invulnerable to cutoffs of foreign oil. It will require sacrifices, but it—and this is most important—it will work.

I have set the following national energy goals to assure that our future is as secure and as productive as our past:

First, we must reduce oil imports by 1 million barrels per day by the end of this year and by 2 million barrels per day by the end of 1977.

Second, we must end vulnerability to economic disruption by foreign suppliers by 1985.

Third, we must develop our energy technology and resources so that the United States has the ability to supply a significant share of the energy needs of the free world by the end of this century.

To attain these objectives, we need immediate action to cut imports. Unfortunately, in the short term there are only a limited number of actions which can increase domestic supply. I will press for all of them.

I urge quick action on the necessary legislation to allow commercial production at the Elk Hills, California, Naval Petroleum Reserve. In order that we make greater use of domestic coal resources, I am submitting amendments to the Energy Supply and Environmental Coordination Act which will greatly increase the number of powerplants that can be promptly converted to coal.

Obviously, voluntary conservation continues to be essential, but tougher programs are needed—and needed now. Therefore, I am using Presidential powers to raise the fee on all imported crude oil and petroleum products. The crude oil fee level will be increased $1 per barrel on February 1, by $2 per barrel on March 1, and by $3 per barrel on April 1. I will take actions to reduce undue hardships on any geographical region. The foregoing are interim administrative actions. They will be rescinded when broader but necessary legislation is enacted.

To that end, I am requesting the Congress to act within 90 days on a more comprehensive energy tax program. It includes: excise taxes and import fees totaling $2 per barrel on product imports and on all crude oil; deregulation of new natural gas and enactment of a natural gas excise tax.

I plan to take Presidential initiative to decontrol the price of domestic crude oil on April 1. I urge the Congress to enact a windfall profits tax by that date to ensure that oil producers do not profit unduly.

The sooner Congress acts, the more effective the oil conservation program will be and the quicker the Federal revenues can be returned to our people.

I am prepared to use Presidential authority to limit imports, as necessary, to guarantee success.

I want you to know that before deciding on my energy conservation program, I considered rationing and higher gasoline taxes as alternatives. In my judgment, neither would achieve the desired results and both would produce unacceptable inequities.

A massive program must be initiated to increase energy supply to cut demand, and provide new standby emergency programs to achieve the independence we want by 1985. The largest part of increased oil production must come from new frontier areas on the Outer Continental Shelf and from the Naval Petroleum Reserve No. 4 in Alaska. It is the intent of this Administration to move ahead with exploration, leasing, and production on those frontier areas of the Outer Continental Shelf where the environmental risks are acceptable.

Use of our most abundant domestic resource—coal—is severely limited. We must strike a reasonable compromise on environmental concerns with coal. I am submitting Clean Air [Act] amendments which will allow greater coal use without sacrificing clean air goals.

I vetoed the strip mining legislation passed by the last Congress. With appropriate changes, I will sign a revised version when it comes to the White House.

I am proposing a number of actions to energize our nuclear power program. I will submit legislation to expedite nuclear leasing [licensing] and the rapid selection of sites.

In recent months, utilities have cancelled or postponed over 60 percent of planned nuclear expansion and 30 percent of planned additions to non-nuclear capacity. Financing problems for that industry are worsening. I am therefore recommending that the 1-year investment tax credit of 12 percent be extended an additional 2 years to specifically speed the construction of powerplants that do not use natural gas or oil. I am also submitting proposals for selective reform of State utility commission regulations.

To provide the critical stability for our domestic energy production in the face of world price uncertainty, I will request legislation to authorize and require tariffs, import quotas, or price floors to protect our energy prices at levels which will achieve energy independence.

Increasing energy supplies is not enough. We must take additional steps to cut long-term consumption. I therefore propose to the Congress: legislation to make thermal efficiency standards mandatory for all new buildings in the United States; a new tax credit of up to $150 for those homeowners who install insulation equipment; the establishment of an energy conservation program to help low-income families purchase insulation supplies; legislation to modify and defer automotive pollution standards for 5 years, which will enable us to improve automobile gas mileage by 40 percent by 1980.

These proposals and actions, cumulatively, can reduce our dependence on foreign energy supplies from 3 to 5 million barrels per day by 1985. To make the United States invulnerable to foreign disruption, I propose standby emergency legislation and a strategic storage program of 1 billion barrels of oil for domestic needs and 300 million barrels for national defense purposes.

I will ask for the funds needed for energy research and development activities. I have established a goal of 1 million barrels of synthetic fuels and shale oil production per day by 1985 together with an incentive program to achieve it.

I have a very deep belief in America's capabilities. Within the next 10 years, my program envisions: 200 major nuclear powerplants; 250 major new coal mines; 150 major coal-fired powerplants; 30 major new [oil] refineries; 20 major new synthetic fuel plants; the drilling of many thousands of new oil wells; the insulation of 18 million homes; and the manufacturing and the sale of millions of new automobiles, trucks, and buses that use much less fuel ….

SIGNIFICANCE

The Arab oil embargo lasted only one year; however, the price of oil had nearly quadrupled. As a result, car manufacturers began to develop smaller, more energy-efficient vehicles. Standards were created for fuel efficiency as well as efficiency stickers placed on vehicles. Japanese cars were imported as they already met the standards for emissions and efficiency. In addition, Congress set a speed limit of 55 miles per hour on the highway, leading to better fuel efficiency as well as fewer fatalities. Consumers were encouraged to develop energy saving practices, such as setting their thermostats to 65° F(18° C) during the winter.

The oil shortage also created a debate on the role of government in ensuring an energy supply. Many of the price controls and regulations in place before the embargo began deterred the development or expansion of alternate forms of energy supply. Plans such as the oil import quota system and the price controls on natural gas were ended. President Nixon developed a strategic oil reserve to be used in times of duress and implemented the Department of Energy, a cabinetlevel department charged with developing and implementing a national energy strategy.

FURTHER RESOURCES

Periodicals

Feldman, David Lewis. "How Far Have We Come? (Revisiting the Energy Crisis)." Environment (May 1, 1995).

Web sites

Energy Information Administration. "25th Anniversary of the 1973 Oil Embargo." Energy Information Administration. 〈http://www.eia.doe.gov/emeu/25opec/anniversary.html〉 (accessed March 2, 2006).

EPA Office of Public Affairs. "EPA's Position Paper on the Energy Crisis." Environmental Protection Agency. 〈http://www.epa.gov/history/topics/energy/01.htm〉 (accessed February 23, 2006).