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1959 U.S. Quota on Foreign Oil Imports

In 1959, President Eisenhower announced the imposition of mandatory quotas on U.S. oil imports. This announcement followed a decade of increasing foreign oil imports to the U.S. Prior to the imposition of the quotas, it was thought by many that increased oil imports would relieve pressure on U.S. reserves. Major U.S. oil companies with international holdings profited from the U.S. importation of foreign oil. However, independent American oil producers were not pleased about the increasing volume of imported oil. They were concerned that rising imports would undermine the domestic oil industry within the United States.

Following the Korean War, oil imports continued to increase and threatened the domestic oil and coal industry. As a result, coal- and oil-producing states in the U.S. sought to limit such imports. The Eisenhower Administration resisted the idea of placing tariffs on imported oil and proposed a voluntary program of foreign oil restrictions as well as a plan to store foreign oil in exhausted U.S. wells. Support for this idea was weak at best and major U.S. oil companies offered no support for it. Ultimately, the voluntary restrictions and the plan to store foreign oil collapsed under the recession of 1958.

The Eisenhower Administration continued to resist the imposition of mandatory quotas on foreign imports until, at the behest of multiple high-ranking politicians, the President was compelled to act. With the imposition of quotas on foreign oil imports, domestic oil producers were happy, while the majors were disappointed, though they grew used to the idea of having their domestic production profits protected from price swings brought about by foreign supply pressures.

The quota system was very complex. It led to higher investment in domestic oil exploration, relative to investments in exploration outside the U.S., and higher oil and gasoline costs to domestic consumers. Ultimately the quota system achieved its goal of protecting the U.S. domestic oil industry, and the domestic interests of the major U.S. oil companies, from foreign oil and they remained in effect for fourteen years.

Throughout the late 1960s and early 1970s, a severe global tightening of the supply-demand balance for petroleum had occurred. This shift in global oil demand was brought about by a rapid increase in industrial growth throughout the world. With demand outstripping production, U.S. surplus capacity was being drawn down rapidly. In 1971, the U.S. ran out of surplus capacity and would became a net importer of oil, opposed to being a net exporter of oil as it had been since the oil industry began.

In 1973, President Nixon removed the import quotas established in 1959 by President Eisenhower. The removal of these quotas followed increasing oil and gasoline prices in the U.S. and political pressure from oil-consuming states and oil users for cheaper supplies. Now, with U.S. oil surplus exhausted, middle-eastern oil and the Organization of Oil Exporting Countries (OPEC - formed in 1960) would play an increasingly important and powerful role in crude oil supply and pricing.

Source: Daniel Yergin. The Prize, 1992



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