Because the price control system was incomplete in that it didn’t cover every part of the U.S. oil market, the price controls were rarely binding. When they were, in the winter of 1972–1973, winter of 1973–1974, and early 1979, shortages occurred. During the rest of the 10 years, the price controls and entitlements program mainly acted like a tax and transfer system. Economist Joseph Kalt found that from 1974 to 1980, federal oil price controls (primarily through the old oil entitlements program) transferred $43–$153 billion annually (in 2023 dollars) from domestic crude producers to refiners. Because this lowered the marginal cost of production of refined products, some of the transfer reduced product prices and benefited consumers. Kalt estimated that 60 percent of the transfer stayed with refiners and 40 percent was passed through to customers.

The price controls and the incentive to import created by the entitlements program reduced domestic production by 0.3–1.4 million barrels per day. And the wealth losses of crude oil producers exceeded the gains obtained by refineries and crude oil consumers. The difference between the two figures is the economic value that price controls destroy—what economists call “deadweight loss”—which Kalt estimated to be between $3 billion and$15 billion annually (in 2023 dollars) from 1975 to 1980.

Kalt’s analysis assumed that world oil prices were unaffected by U.S. controls. But economist Rodney T. Smith calculated that EPCA price controls increased world crude oil prices by 13.35 percent. And economist Robert Rogers, who incorporated Smith’s findings into an econometric model, found that the EPCA increased domestic oil prices.

This is an excerpt from one of my favorite articles in Ryan A. Bourne, The War on Prices: How Popular Misconceptions About Inflation, Prices, and Value Create Bad Policy.

It’s Peter Van Doren, “Oil and Natural Gas Price Controls in the 1970s: Shortages and Redistribution.”

I remember trying to figure out in December 1974 and early 1975 how the “entitlement” program would affect prices. I was sharing thoughts with Richard Sweeney and Tom Willett at the U.S. Treasury. I had got to know them both in the summer of 1973, when I was a summer intern at the Council of Economic Advisers. The person who ultimately figured it out was my fellow UCLA graduate student Joe Kalt.

I’ve titled this post “Some of the Awful Effects of Price Controls on Oil” because the worst effects were long-term: CAFE mandates on fuel economy for cars and trucks being the main one.