When you’re scouring gas stations to find the best price per gallon, the cost of oil doesn’t seem like anything more complex than a number. For most of us, the conception of oil’s extraction, refinement, and journey into our gas tank starts and ends at the gas station. However, a lengthy and intricately tangled narrative encompassing the history of modern geo-politics rests inside the meaning of the price of a gallon of gas.
Here’s a historical look at the prices of gas from the 1930s to today, told with all of the messy and compelling political contexts that continue to make oil one of the world’s most precious commodities.
The oil market in the 1930s bears a striking resemblance to the plummeting oil prices that have shaken the petroleum industry over the last few years. While crops were drying up in the Midwest and Wall Street was still reeling from the stock market crash, oil barons were having a field day. Texas, in particular, experienced a boon of oil discovery that flooded the markets. This influx of petroleum, coupled with a lowered global demand for fossil fuels, crashed the price of oil. As a result, a gallon of gas cost consumers only $0.16 in 1935, a reasonable price even when adjusted for inflation.
By the time the United States entered into World War II, gasoline had become a crucial commodity not only on our own soil but on enemy territory. With its fossil fuel-powered fleet of tanks and jeeps, the U.S. military understood its need for a flowing supply of gasoline in order to maintain an edge over Nazi Germany. It was perhaps this consistent dependence on oil and its increased production fueled by the war that allowed gas prices to stay low. In 1945, a gallon of gas had raised only two cents to $0.17 from 1935 levels, despite gas rationing in the United States.
The 1950s was a seminal decade in the history of fossil fuel consumption. Buoyed by the dependence on gasoline during World War II, the petroleum market grew to a mammoth size as a booming post-war economy provided consumers in the United States with new stores of disposable income. This new influx of wealth coincided with a rapidly developing car culture, bolstered by the expansion of Dwight D. Eisenhower’s intricate Interstate Highway System that created a growing need for automobiles. Newly developed suburbs reflected the dominance of cars as cul-de-sacs and tucked-away houses ensured home owners needed vehicles to commute to work.
Across the Atlantic, a new discovery catapulted petroleum production to the highest levels the world had ever seen. In 1948, oil prospectors discovered the Ghawar Field in Saudi Arabia, which is still the largest oil field in the world. Britain, the United States, and the Soviet Union all realized the importance of the Middle East’s vast oil reserves and set out to capitalize on these new resources. During the Suez Oil Crisis of 1956, Britain, France, and Israel attempted to wrestle control of the canal from Egypt due to its importance as an oil trade route, but they ultimately failed. Egypt shut down the canal in retaliation, forcing the county’s invaders to retreat under threat of decreased petroleum transportation and pressure from President Eisenhower. The reliance on automobiles in the U.S. and the discovery of oil in the Middle East highlighted the growing importance of petroleum, and continued to keep the resource plentiful. As a result, prices stayed reasonable. In 1955, one gallon of gas fetched barely over a quarter, at $0.26.
The beginning of the 1960s saw the birth of the most powerful oil conglomerate in the world. The Organization of Petroleum Exporting Countries (OPEC) organized itself for the first time in 1960. Originally, OPEC consisted of five countries: Saudi Arabia, Iran, Iraq, Kuwait, and Venezuela. These nations sought to maintain control and stability over global oil prices, especially in the face of increasing domination of the Seven Sisters Oil cartel, comprised of major companies such as Texaco and Royal Dutch Shell. Despite this newfound alliance, OPEC faced difficulty in controlling the global oil economy and prices changed little from previous years. In 1965, a gallon of gas cost $0.30 — a marginal increase from the 1950s.
In 1965, the Middle East hit an important milestone that proved to be instrumental to the geo-politics of petroleum in the 1970s. The Middle East overtook the United States in oil production that year, giving a strategic advance in the oil market, which laid the groundwork for two of the most significant energy crises of the 20th century. The newly formed OAPEC, which included the initial members of OPEC, became furious at the United States for its support of the Israeli military during the Yom Kippur war in 1973. As a result, they initiated an embargo on U.S. oil exports, which skyrocketed the price of oil due to the United States’ dependence of Middle Eastern oil reserves. Under international and economic pressure, the U.S. arranged an end to the Yom Kippur war, signaling the new dominance of OAPEC. Gas prices jumped 14 cents from $0.37 a gallon in 1973 to $0.50 in 1974.
The end of the 1970s provided another shock to the stability of global oil prices. Iran, a prominent producer of oil, was undergoing a political and social upheaval in 1979 known as the Iranian Revolution. Mohammed Reza Pahlavi, the Shah of Iran who was known as a secular leader, faced a revolt from Iranian citizens due in part to his crackdown on political dissidents. Interestingly enough, oil also played a crucial role in the Iranian Revolution as the U.S. and Great Britain supported a 1953 coup of Iran’s democratically elected Prime Minister Mohammad Mosaddegh, who attempted to nationalize the county’s oil industry. Consumers panicked as Iran exported a smaller supply of oil, and prices again took a severe hit — increasing from $0.65 to $0.88 per gallon in just a year.
Continued political instability in the Middle East wreaked havoc on oil production in the 1980s. Aftershocks of the Iranian Revolution rippled throughout the world as millions of barrels of oil were being lost by the day. A war brewing between Iraq and Iran further fueled the decline of oil production and global uncertainty around the future of fossil fuels. Oil prices in the 1980s reached its zenith in 1983 when a barrel cost $32. Due to decreased oil production in the Middle East, OAPEC enjoyed budget surpluses as cutting back its petrol exports drove up prices globally.
Prices began to stabilize towards the latter half of the 1980s as conflicts between OAPEC members destabilized its effort to drive up prices. Membership had expanded well beyond its initial five nations to include members such as Libya, Venezuela, and Ecuador. The expansion of its members led to fraction among the organization causing prices to dip slightly. In 1981, a gallon of gas cost $1.35, but by 1989 the price had fallen to $1.06.
Following the trend of the past few decades, the 1990s opened up with more unrest fueled by domination for oil. Many OPEC nations continued to produce oil at a rate higher than their quotas, which further disenfranchised the organization’s ability to stabilize prices. Kuwait’s overproduction of oil proved to be the catalyst for continued chaos in the Middle East. Fearing Kuwait overproduced by tapping into Iraq’s oil reserves, Iraqi President Saddam Hussein invaded the tiny nation. In addition, Iraqi officials became increasingly hostile towards Kuwait as the nation refused to cut back its oil production, which would increase prices and allow Iraq’s oil-dependent economy to reap the economic benefits.
Iraq desperately needed the extra money to pay back its extensive debts accrued from the Iraq-Iran war. As war between the two major oil-producing nations became evident, the price of petroleum jumped drastically. The price per barrel increased from $17 to $36 in just three months in 1990. However, as a United States military intervention stamped out the invasion, the politics of the Middle East began to ease. Oil production rose throughout the remainder of the 1990s, and as a result, prices steadily dropped. A gallon of gas cost $1.22 in 1990, and decreased to a decade low of $1.12 in 1998.
The 21st century started with rapid uncertainty caused by the dot-com bust, but demand for oil only increased. Rapid population rise, and a world increasingly dependent on fossil fuels drove oil demand upwards. The price of oil fell briefly following the September 11 attacks, but a number of unpredictable global events were about to create yet another energy crisis including low oil reserves in the U.S., Hurricane Katrina, population growth outpacing oil production, and tensions in the Middle East following the beginning of the Iraq war. In 2003, Venezuelan oil workers went on strike in order to cut off the country’s main export to force President Hugo Chavez to hold re-elections. The decrease in oil production helped to jumpstart the ensuing surge in oil prices.
Oil prices in the 2000s reached their height in summer 2008, when a barrel of oil went for $147.30. Analysts were scrambling to narrow down the reason for such a drastic increase. Some pointed to the belief that we had reached peak oil production as increasingly costly methods of extraction failed to produce enough oil to make the investment worthwhile. Others pointed to an increase in global oil subsidies, which protected some nations from higher oil prices that would otherwise decrease the demand for fuel.
Some analysts hoped that the looming crisis of climate change would decrease demand as the public became increasingly aware of the need for renewable energy sources as fossil fuels destabilized the climate. However, demand continued to increase and oil producers struggled to keep pace. The cost of gas at the pump embodied the price shocks endured by consumers throughout the decade. A gallon of gas cost $1.56 in 2000, which increased to $3.32 by 2008.
14. The 2008 Recession
One catastrophic event proved to be the nail in the coffin for rapidly rising oil demand. The onset of the 2008 financial crisis sent shockwaves of uncertainty throughout the world as citizens saw their savings depleted and finances decimated. The price of oil plummeted, and a barrel of oil decreased from the high of $147.30 to $32 in December 2008. Prices began to regain stability, and fell from $3.32 in 2008 to $2.40 in 2009.
The 2008 Recession ensured demand for oil stayed at levels lower than those of the previous decade and gas prices remained steady in 2010. However, the surge of political turmoil coinciding with the Arab Spring reduced oil production in crucial countries such as Libya, Yemen, and Egypt. Saudi Arabia compensated for the deficit by producing more oil, but prices still increased throughout 2011 and 2012 as the U.S. dollar weakened. The United States re-emerged as an oil-rich nation as hydraulic fracturing opened vast reserves of previously untapped oil. This rapid increase in production coincided with a lowered demand, creating a perfect storm for some of the lowest oil prices in 15 years. In 2010, the price of gas was $2.84, but by 2015 the price had fallen to $2.51.