7.2 The energy crisis and the boom-bust cycle in Texas

Texas faced major economic shifts in the late 20th century due to the energy crisis and boom-bust cycle. The 1973 OPEC oil embargo initially boosted Texas's oil-based economy, but later exposed its vulnerabilities to global market fluctuations.

The subsequent boom-bust cycle reshaped Texas's economic landscape. While the oil boom brought rapid growth and prosperity, the 1980s bust led to widespread job losses, bank failures, and a real estate crash, prompting efforts to diversify the state's economy.

Texas Energy Crisis

OPEC Oil Embargo and Initial Impact

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• 1973 OPEC oil embargo triggered energy crisis in Texas
  • Led to dramatic increase in global oil prices
  • Caused supply shortages worldwide
• Texas initially benefited from price spike as major oil-producing state
  • Experienced surge in oil industry investments
  • Saw rapid economic growth (Houston, Dallas)
• Crisis exposed Texas's heavy dependence on oil and gas industry
  • Made state economy vulnerable to global energy market fluctuations
  • Highlighted need for economic diversification

Long-Term Consequences

• Overproduction in 1980s led to severe economic downturn
  • Resulted in widespread job losses (over 200,000 in energy sector)
  • Caused numerous bank failures (over 200 banks closed)
  • Triggered real estate crash (property values fell by 30% in Houston)
• Energy crisis prompted diversification efforts in Texas economy
  • Increased investments in technology (Austin's "Silicon Hills")
  • Expanded healthcare sector (Texas Medical Center growth)
  • Developed service industries (finance, tourism)
• Environmental concerns arose from crisis
  • Led to increased scrutiny of oil and gas industry practices
  • Resulted in gradual implementation of stricter regulations (Clean Air Act amendments)

Boom-Bust Cycle's Impact

Economic Expansion During the Boom

• Oil boom of 1970s led to rapid growth in energy sector
  • Created numerous high-paying jobs (average oil worker salary increased by 25%)
  • Attracted workers from other states and countries to Texas (population grew by 3 million)
• Real estate markets in major Texas cities experienced significant growth
  • Property values skyrocketed (Houston home prices increased 100% from 1970-1980)
  • Extensive construction projects launched (Dallas skyline transformed)
• Banking sector expanded rapidly to finance oil-related ventures
  • Number of banks in Texas increased by 40% from 1970-1980
  • Led to overexposure to energy industry

Economic Contraction During the Bust

• Oil price collapse in 1980s triggered massive layoffs in energy sector
  • Created ripple effect across industries dependent on oil wealth
  • Unemployment rate in Texas reached 9.3% in 1986
• Real estate market crashed during bust
  • Left many properties vacant and devalued
  • Particularly affected energy-centric cities (Houston office vacancy rate reached 30%)
• Banking crisis followed the bust
  • Resulted in numerous bank failures (9 of 10 largest Texas banks failed)
  • Led to credit crunch affecting businesses across various sectors

Impact on Other Economic Sectors

• Agriculture suffered from reduced demand and tightened credit conditions
  • Farm foreclosures increased by 200% from 1981-1985
  • Cotton and cattle prices fell by 30%
• Manufacturing sector experienced decline
  • Texas lost 50,000 manufacturing jobs between 1982-1987
  • Closure of several major plants (GM plant in Arlington temporarily shut down)

Government Response to Crisis

Regulatory Actions and Policies

• Texas Railroad Commission attempted to stabilize oil production and prices
  • Implemented production quotas to reduce oversupply
  • Coordinated with OPEC to influence global oil markets
• Federal energy policies impacted Texas energy landscape
  • Created Strategic Petroleum Reserve (stored 713 million barrels by 1991)
  • Gradually deregulated oil prices (completed by 1981)
• Texas legislature implemented tax incentives and regulatory reforms
  • Encouraged exploration and production during boom years
  • Later exacerbated oversupply problem in 1980s

Economic Diversification Efforts

• State government initiated programs to reduce reliance on oil and gas
  • Invested in technology sector (created Texas Emerging Technology Fund in 2005)
  • Supported biotechnology growth (established Texas Healthcare and Bioscience Institute)
• Savings and loan crisis prompted regulatory reforms in banking sector
  • Created Resolution Trust Corporation to manage failed institutions
  • Implemented stricter lending regulations (Financial Institutions Reform, Recovery, and Enforcement Act of 1989)

Environmental and Social Policies

• Environmental policies strengthened in crisis aftermath
  • Balanced economic interests with pollution concerns
  • Implemented stricter emissions standards for refineries
• Government-funded retraining programs assisted displaced workers
  • Provided job training in emerging industries (computer programming, healthcare)
  • Offered extended unemployment benefits to support transition