Why Did Price Controls Create the Gasoline Lines?

The iconic image of the 1973-74 oil crisis—lines of cars stretching around city blocks, waiting hours for gasoline—was not simply a consequence of the oil embargo. It was substantially a consequence of price controls. Countries that allowed market prices to adjust—most of Western Europe—experienced the oil shock as a price increase and reduced consumption, without the allocation chaos of gasoline lines. The United States, with price controls capping gasoline prices below market-clearing levels, experienced both a price increase (for uncontrolled petroleum products) and allocation shortages (for price-controlled gasoline). The gasoline lines were a real-time demonstration of the economic principle that below-market price ceilings create shortages—a lesson that proved difficult to apply in politically charged conditions. Understanding why the lines formed and how they were eventually resolved provides one of economic history's clearest examples of the unintended consequences of well-intentioned price controls.

Quick definition: The gasoline lines of 1973-74 refer to the widespread shortages and queuing for gasoline that resulted from the combination of the oil embargo's supply reduction and Nixon's price controls that capped gasoline prices below market-clearing levels—preventing price from performing its rationing function, creating excess demand at controlled prices, and producing the visible allocation crisis of hours-long waiting lines at gas stations across the United States.

Key takeaways

• US gasoline price controls, inherited from Nixon's 1971 wage and price control program, prevented market prices from rising to balance supply and demand after the oil embargo.
• Below-market controlled prices created excess demand: consumers wished to buy more gasoline than suppliers were willing to provide at the controlled price; the result was shortages expressed as queuing.
• Odd-even rationing—allowing purchases only on alternate days based on license plate numbers—was an administrative response to the shortage that moderated but didn't resolve the allocation problem.
• Countries without gasoline price controls (most of Western Europe) experienced the oil shock as a sharp price increase; they reduced consumption through higher prices rather than through queuing and administrative rationing.
• The comparison between US and European experiences provided compelling evidence for oil price decontrol, which began under Carter and was completed under Reagan in 1981.
• The gasoline lines disappeared after decontrol: market prices rationed available supply without administrative queuing, confirming that the shortages were policy-created rather than inevitably physical.

The economics of price ceilings

The gasoline shortage's economic cause was elementary: price controls created a price ceiling below the market-clearing price. Basic price theory predicts that a price ceiling below equilibrium creates a shortage—quantity demanded exceeds quantity supplied at the controlled price. The shortage must be resolved somehow: through queuing (first-come, first-served rationing), administrative allocation, or black markets.

In 1973-74, the US government resolved the shortage primarily through queuing (the visible gas lines) and administrative allocation (attempting to direct gasoline supplies to filling stations). The allocation system was designed to ensure geographic equity—spreading available supplies across regions—but it was complex, poorly administered, and frequently disrupted by unintended consequences.

Gasoline price controls were part of Nixon's broader wage and price control program, which had been imposed in August 1971 and continued through various phases. When oil prices rose sharply in late 1973, the controls prevented market prices from rising proportionally. Wholesale gasoline prices were controlled; retail prices were controlled; the price signals that would normally have induced conservation (consumers driving less), supply adjustment (producers pumping more), and substitution (consumers seeking alternatives) were muted.

How Price Controls Created Shortages

The odd-even rationing experiment

As shortages became visible and lines lengthened, states began implementing odd-even rationing: vehicles with license plates ending in odd numbers could purchase gasoline only on odd-numbered days; vehicles with even-numbered plates could purchase only on even-numbered days. Several states implemented the system; it became widely associated with the 1970s energy crisis.

The economic effect of odd-even rationing was to spread demand over two days rather than concentrating it on any given day—modestly reducing the maximum line length at any individual station while not addressing the fundamental excess demand problem. Consumers facing two-day waits often topped off their tanks on every permitted day rather than waiting until genuinely low—maintaining high demand.

The social and economic costs of queuing were significant. Time spent waiting in line was economically valuable time lost—estimates of the aggregate productivity cost of gasoline lines ran to billions of dollars annually. The distribution of waiting costs was regressive: wage workers who could not leave their employment to wait in line were disadvantaged relative to self-employed individuals and those with flexible schedules.

Violence occasionally erupted at gas stations—altercations over place in line, confrontations between drivers and station attendants managing limited supplies. The social stress of the shortage was visible and politically embarrassing.

The European contrast

The most instructive comparison for understanding the gasoline line episode is the European experience with the same oil shock.

Western European countries generally allowed market prices to adjust when oil prices rose. There were no extended gasoline lines in the UK, France, or Germany comparable to the US experience. Europeans responded to higher gasoline prices through behavioral changes—driving less, shifting to more fuel-efficient vehicles, carpooling, using public transportation more—that market price signals induced automatically.

German gasoline prices roughly doubled in 1973-74; German drivers consumed less gasoline in response. The adjustment was economically painful—real incomes fell as energy costs rose—but the allocation mechanism functioned without administrative queuing. France and the UK had similar experiences, with some additional conservation measures (Sunday driving bans, speed limit reductions) that supplemented price adjustment.

The US experience, with controlled prices, produced both allocation chaos (the lines) and less conservation (consumers responded less to artificially capped prices). The comparison provided compelling evidence that market prices were a more effective rationing mechanism than administrative controls, contributing to the political case for decontrol.

The 1979 repeat

The 1979 Iranian Revolution produced a second round of gasoline lines—less severe than 1973-74 because partial decontrol had been implemented, but still visible and politically damaging for Carter. California experienced particularly severe shortages; lines wrapped around city blocks in Los Angeles.

Carter began more systematic price decontrol in 1979; Reagan completed it in January 1981. The immediate result of full decontrol was higher gasoline prices—consumers who had been sheltered by controls faced market prices. The secondary result—the disappearance of gasoline lines—confirmed that the lines had been policy-created rather than representing fundamental physical unavailability.

Post-decontrol, market prices rationed available gasoline efficiently: consumers who valued gasoline highly purchased it; those who valued it less reduced consumption in response to higher prices. No lines; no administrative rationing; no shortages. Higher prices, but clear allocation without the time costs and distributional inequities of queuing.

The political economy of controls

Why were price controls maintained through the 1973-74 crisis despite the evidence that they were creating allocation problems? The political economy provides the answer:

Visible versus invisible costs: The costs of price controls (gasoline lines, time wasted queuing, administrative complexity) were visible and were often attributed to the oil embargo rather than to the controls themselves. The counterfactual (what prices would have been without controls) was invisible.

Concentrated benefits versus diffuse costs: Price controls provided benefits to those who successfully purchased controlled-price gasoline—a concentrated, visible benefit to each successful buyer. The diffuse costs (allocative inefficiency, aggregate productivity loss, conservation disincentives) were less visible to any individual.

Distributional concerns: Consumer advocates argued that allowing gasoline prices to rise would burden lower-income households who spent a higher share of income on gasoline. This distributional argument—though addressable through direct income support rather than price controls—carried political weight.

Political attribution: Allowing prices to rise during a crisis was politically risky for elected officials, who feared being blamed for high prices. Controls shifted blame to the oil companies or the embargo, even if the controls were causing the visible shortages.

The political economy of price controls in energy markets has repeated in subsequent crises—California electricity price controls during the 2000-01 power crisis, various fuel price control debates during 2022—with similar dynamics of short-term political appeal leading to allocation problems.

The decontrol and aftermath

Carter's Executive Order 12287 in January 1980 began the phased decontrol of domestic crude oil prices, completing by October 1981; Reagan's Executive Order 12287 accelerated completion to January 1981. Gasoline prices rose—approximately 10-15 percent immediately as market prices replaced controlled prices—but the lines disappeared.

The decontrol's secondary effect was also significant: higher domestic oil prices made domestic production more profitable, stimulating exploration and development that produced increasing domestic supply through the early 1980s. The controlled price had been suppressing the domestic supply response; decontrol unleashed investment in Alaskan North Slope production and other domestic resources.

The decontrol experience provided compelling empirical evidence for market price mechanisms over administrative allocation—evidence that influenced energy policy, deregulation debates, and broader economic policy through subsequent decades.

Real-world examples

The 2021-22 California ban on new gasoline vehicle sales by 2035 and the Biden administration's release from the Strategic Petroleum Reserve in 2022 both reflected the lessons of 1973-74: reducing oil dependence through technological transition (electrification) and maintaining emergency supply reserves to moderate market price spikes rather than imposing price controls. The policy tools evolved; the underlying lesson—that markets allocate energy more efficiently than administrative controls—was applied.

Post-Soviet Russia's experience with price liberalization in the early 1990s illustrated the same principle: administered prices had created allocation distortions (product queues, black markets) that disappeared rapidly after market prices were introduced, despite the sharp short-term price increases that liberalization produced.

Common mistakes

Attributing the gasoline lines primarily to the embargo. The physical supply reduction from the embargo was approximately 4-5 percent of US supply—significant but not catastrophically large. Countries that allowed price adjustment accommodated the supply reduction through price increases rather than queuing. The lines were primarily a price control artifact, not an inevitable consequence of the supply disruption.

Treating gasoline price controls as protecting low-income consumers. Price controls provided below-market prices to whoever was able to access controlled supplies—but access was rationed by time (waiting in line), which disfavored hourly workers who couldn't afford to lose work time queuing. Direct income support (rebates, tax credits) would have been both more equitable and more efficient.

Treating all rationing as equivalent. Queuing (first-come, first-served) is particularly wasteful: it consumes time whose value varies across people, distributing supply toward those who value their time least rather than toward those who value the product most. Tradeable rationing systems (where ration coupons can be sold) are more efficient; price rationing is most efficient. The 1973-74 US experience used the least efficient form.

FAQ

Were there black markets for gasoline during the shortages?

Yes, though they were relatively contained. Some stations sold gasoline "off the books" at above-controlled prices; some drivers traded coupons or waited in line for others in exchange for payment. The black market was limited partly because of legal risk and partly because gasoline was not easily tradeable in small quantities. The presence of even a limited black market demonstrated that the controlled price was below market-clearing—exactly what supply-and-demand theory predicts for price ceilings.

What did the NBER study of the gasoline lines find?

Various studies documented the substantial time cost of gasoline queuing—estimates of aggregate productivity loss ran from hundreds of millions to several billion dollars annually during the peak shortage periods. The time cost fell disproportionately on hourly workers and the self-employed who could not expense the waiting time. The studies helped build the economic case for decontrol by quantifying the hidden costs of administrative allocation.

Did the 1973-74 gasoline lines have any lasting impact on American driving habits?

The immediate impact was significant: Americans drove less, carpooled more, used public transportation more, and sought more fuel-efficient vehicles. Many of these behavioral changes persisted somewhat after prices moderated—habits formed during the crisis period created lasting shifts in some travel patterns. However, as gasoline prices moderated in the mid-to-late 1970s (still above 1973 levels but below 1974 peaks), many behaviors reversed. The durable impact on driving habits was more limited than the immediate crisis period suggested.

Related concepts

• Oil Shock Overview
• Energy Policy Responses
• The Yom Kippur War Geopolitics
• Supply Shock Economics
• Corporate America and the Oil Shock

Summary

The gasoline lines of 1973-74 and 1979—one of the most iconic images of the energy crises—were substantially a creation of price controls rather than inevitable consequences of the supply disruption. Price ceilings below market-clearing levels created excess demand that was rationed through queuing rather than price; odd-even rationing moderated line lengths but did not resolve the fundamental allocation problem. The Western European contrast—similar oil supply disruption, price adjustment rather than controls, no gasoline lines—provided compelling evidence that markets allocate energy supplies more efficiently than administrative controls. Carter's partial decontrol (1979-1980) and Reagan's completion (1981) eliminated the lines while raising prices—exactly the theoretical prediction. The episode is the textbook illustration that price ceilings create shortages and that the visible cost of queuing is an invisible consequence of the price control that policymakers rarely anticipate when imposing controls during crises.

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