AN ECONOMIC ANALYSIS OF CRUDE OIL PRICE BEHAVIOR IN THE 1970s

Uncontrolled U.S. crude oil prices, after adjustment for inflation, have increased 140% from 1970-June 1978. From 1975 onward, real prices of crude actually have declined 13%. Price movements in the 1970's are reviewed in light of capital theory and property rights theory, including the record of oil price behavior resulting from the iranian reductions of supply in the winter of 1978-79. The iranian problem is of short-run significance. The price of oil is a rational reflection of the price-limiting power of future oil production from huge shale reserves. The U.S. shortage in March 1979 would have occurred as a result of government price controls without the impact of the problem in Iran.