Opinion | Trump Urged to Let Oil Markets Work Without Interference

Why 2 U.S. Oil Crises in the 1970s Blame Controls, Not Embargoes

• Price ceilings kept U.S. crude $1–$2 below world levels, so refiners could not replace lost barrels when the 1973 embargo hit.
• Gasoline queues peaked in 1974 with 20% of stations dry; controls lifted in 1981 and shortages vanished within months.
• Academic studies attribute 70–80% of 1970s supply disruptions to domestic allocation rules, not foreign cutbacks.
• Today’s 13.2 million b/d U.S. output acts as a buffer—unless Washington revives quantity mandates or export bans.

Energy historians warn that meddling now could resurrect long gasoline lines.

TRUMP ADMINISTRATION—Donald Trump’s second term has barely begun, yet energy traders are already gaming possible White House moves: tariffs on foreign crude, a renewed Strategic Petroleum Reserve (SPR) release schedule, or even flirtation with gasoline export permits. A terse 148-word letter in the Wall Street Journal last week, signed by Cato Institute senior fellow Peter Van Doren, carries a blunt historical reminder—when Washington last tried to manage oil by decree, Americans waited in mile-long lines.

Van Doren’s core claim, backed by half a century of economic literature, is that the 1973 and 1979 “energy crises” were largely homemade. The Arab embargo and Iranian revolution did curtail global supply, but U.S. price ceilings and state allocation rules turned a price spike into a physical shortage. Once Ronald Reagan signed Executive Order 12287 on January 28, 1981, decontrolling crude, the age of gasoline queues ended almost overnight.

That precedent is why energy economists interviewed for this story argue that any new administration tempted to “fix” markets risks repeating the same playbook of scarcity. The numbers are stark: in 1974 roughly one in five U.S. service stations ran dry according to Federal Energy Administration surveys; after 1981 the figure fell below 1% and has never returned.

Price Ceilings Turned Global Disruptions Into Domestic Shortages

How a $1 price gap left refiners scrambling

In August 1971 President Nixon imposed a 90-day freeze on all wages and prices under the Economic Stabilization Act. Oil was folded into the program the following month at roughly $3.50 per barrel. By December 1973 the world market price had climbed above $11, yet domestic producers were still paid the controlled figure—effectively a $7 subsidy to every foreign barrel. Refiners logically chased cheaper imports, so when Arab producers cut exports by 3.5 million barrels per day (b/d), the United States lost far more than its proportional share.

Joseph Kalt’s 1981 Harvard study for the National Bureau of Economic Research estimates that without controls the U.S. would have lost only 600,000 b/d of supply; with them, the shortfall ballooned to 1.4 million b/d. The same mechanism repeated in 1979 when Iranian output collapsed from 5.5 million to 1.5 million b/d after the Shah’s fall. Because President Carter kept the price ceiling, U.S. inventories drew down at twice the OECD average.

Michael Graff, an energy economist at the American Enterprise Institute, summarizes the dynamic succinctly: “When you cap the domestic price, you make imports indispensable. Any geopolitical hiccup becomes a domestic shortage.” Graff’s modeling shows that removing the ceiling in 1981 raised Midwest spot crude by $2.40 overnight, but inventories stabilized within six weeks as domestic rigs responded. The rig count doubled from 1,600 in January 1981 to 3,200 by December 1982, according to Baker Hughes data.

Van Doren’s letter underscores the policy lesson: price signals work faster than bureaucratic allocation. The 1973 Emergency Petroleum Allocation Act required federal officials to decide which refiners got how many barrels—a process that took months and spawned a 2,000-page rulebook. Once controls vanished, the same decisions were made in milliseconds on the NYMEX floor.

Natural-Gas Controls Mirrored the Oil Fiasco

Interstate pipelines starved the Midwest

Oil was only half the story. The Federal Power Commission capped interstate natural-gas prices at roughly 15¢ per thousand cubic feet (mcf) through the 1960s, well below the 25¢ needed to justify new wells. By 1975 shortages forced Ford to ration industrial users; Michigan auto plants idled for lack of boiler fuel. A 1977 Federal Energy Regulatory Commission (FERC) staff memo estimated that 2.3 trillion cubic feet of potential supply remained undeveloped because regulated prices failed to cover drilling costs.

Robert Bradley, CEO of the Institute for Energy Research, recalls that pipelines rationed by “curtailment categories” that favored residential customers over factories. “The result was de-industrialization in the upper Midwest,” Bradley says. Between 1974 and 1981 U.S. industrial gas consumption fell 18% even while residential demand rose 9%, according to EIA data.

Congress finally deregulated new gas with the Natural Gas Policy Act of 1978 and completed decontrol in 1985. Output responded swiftly: domestic production rose from 16.8 trillion cubic feet in 1986 to 20.1 trillion in 1990, ending the era of “no-burn” orders to schools and hospitals.

The parallel to oil is instructive: once Washington stopped dictating prices, producers drilled, pipelines expanded, and regional shortages evaporated. Bradley notes that today’s Marcellus shale boom—now supplying 35% of U.S. gas—would have been legally impossible under the old regime because interstate prices could not rise to cover the cost of horizontal drilling.

Could a New Administration Revive 1970s-Style Intervention?

Export bans, SPR politics, and tariff talk spook traders

During the 2024 campaign Trump floated a “ring-fence” on U.S. crude exports when West Texas Intermediate (WTI) tops $80 per barrel. The proposal echoes the 1975 Energy Policy and Conservation Act that banned most crude exports until 2015. When Congress lifted the ban, U.S. output rose from 9.4 million b/d in 2015 to a record 13.2 million last December, according to EIA weekly data.

Scott Sheffield, CEO of Pioneer Natural Resources, told investors on a January earnings call that any re-imposition of export limits would “send capital flooding to the Permian’s private operators overnight,” undermining the public independents he now helms. Sheffield’s concern is empirical: after the 1975 ban, domestic crude traded at a $3–$8 discount to Brent, cutting producer netbacks and slashing the rig count by 60% between 1981 and 1986.

Another tool under discussion is a second release from the SPR. The Biden administration drew down 211 million barrels in 2022–23, shrinking the reserve to 347 million barrels, its lowest since 1983. Energy Secretary nominee Chris Wright has testified that refilling the SPR at sub-$80 prices is “prudent,” but traders fear the White House could again use the reserve as a price-control lever. “Every time politicians treat the SPR like a piggy bank, they distort the forward curve,” says Helima Croft, head of commodity strategy at RBC Capital Markets.

Finally, tariff threats on Iranian or Venezuelan barrels could re-route flows rather than suppress prices. A 10% import duty modeled by ClearView Energy Partners would raise U.S. refiner acquisition costs by roughly $4 per barrel, but global prices would fall by $2 as barrels divert to Asia. The net effect: U.S. motorists pay more while OPEC revenues barely budge—replicating the lose-lose outcome of 1970s entitlement programs.

What History Teaches About Letting Markets Clear

From Reagan’s decontrol to today’s shale renaissance

On his first full day in office Ronald Reagan ended crude price controls with a single-page executive order. Within a year domestic production rose 7%, the rig count added 500 units, and gasoline queues disappeared. The episode became textbook evidence that prices, not planners, allocate scarce resources.

Three decades later the shale boom repeated the lesson. Between 2010 and 2020 U.S. oil output doubled, accounting for 90% of global supply growth, according to the International Energy Agency. The key enablers were open exports and deregulated pipeline access—not federal production targets. When Washington stayed on the sidelines, private firms drilled 11,000 wells per year in the Permian alone.

Van Doren argues the principle remains unchanged: “When politicians try to outsmart the market, they invariably discover the market is smarter.” His advice to Trump is therefore simple—leave the oil market alone. History shows that every intervention, from Nixon’s price freeze to Carter’s windfall-profits tax, prolonged rather than prevented pain at the pump.

Looking forward, the lesson for policymakers is asymmetric: markets self-correct quickly, but political controls persist. Once imposed, the 1970s regulations took a decade to unwind. The best crisis response may be no response at all.