Political instability in the Middle East caused dramatic oil price increases in late 1973 and during a seventeen-month period over 1979-80. These events created a natural laboratory for economists to study the response of markets and economies to shifts in the relative price of an important input.
Prior to the decade of energy shocks, economists specializing in this area usually focused on market structure of the critical oil market (Adelman, 1973) or the structure and regulations of specific fuel markets. While these issues continued to receive attention, new empirical issues were intensely studied, of which three key areas are highlighted here: energy demand and its response to price; the connection between energy and other factors of production; and the response of the aggregate economy to input price shocks. Analysis of cartel behavior in the world oil market also attracted much interest and is briefly reviewed.
The economic research on energy supply remained largely theoretical, focusing on the formal aspects of modeling depletion. In general, these contributions provided few empirical insights than those in the above areas. Additionally, contributions in the market research and industrial organization of other fuel markets were not as noteworthy, although the shift away from oil and the recent deregulation trends in natural gas and electricity markets have regenerated new interests in these topics.