Of course, some reduction of investment usually accompanies the recognition of a downshift in the economy, as firms bring their capital stocks in line with a revised outlook for sales. But the severity of the adjustment last year appeared to reflect more than the usual reaction. Businesses seemed to be reassessing the profitability of additional fixed capital in a more fundamental way.
A further surge in oil prices accompanied the Iranian Revolution in 1979. The higher prices of the 1970s brought to an abrupt end the extraordinary period of growth in U.S. oil consumption and the increased intensity of its use that was so evident in the decades immediately following World War II.