Last time Texas oil prices plummeted, the fallout changed everything

When Kathy Whitmire ran for Houston mayor in 1981, helicopters were among the top sources of municipal strife. Residents of the Memorial neighborhood were irate over the daily noise of west Houston businesspeople who opted to fly over the gridlocked freeways for their morning commutes.

That’s just how over the top the Texas economy had become as oil prices skyrocketed in the 1970s and into the early 1980s.

Whitmire won the race. But a plunge in oil prices effectively resolved the noise complaints. And about about a year into office, her problems became bigger and more unexpected.

“All of the party was over,” Whitmire said in a recent interview with The Texas Tribune. “At first, I thought this would be temporary.”

Instead, the oil bust engulfed the decade.

She and other leaders across the state confronted an economic crisis for the ages, at least until the current oil bust and the COVID-19 pandemic ravaged the Texas economy this spring. The fallout forever changed Texas, but it also offers warnings and lessons for the anticipated trouble ahead.

It all started in 1973, when oil in the United States cost $3.89 per barrel. The state’s image was already rooted in oil produced-wealth. But for the most part, oil was a bargain for most Americans.

Late that year, the cartel of mostly Middle Eastern oil-producing countries known as OPEC retaliated against the United States for supporting Israel in the Yom Kippur War with a whopper of an oil embargo. Americans found themselves waiting in long lines at gas stations for a commodity that they had always taken for granted. Prices jumped, and the U.S. economy suffered.

Not so in Texas.

Money sloshed around the state as independent oil producers took out millions in loans to buy the equipment needed to drill from Kilgore to Wichita Falls to Midland. Manpower was needed not just in the oil patch but in the search for petroleum. Geologists, landmen and attorneys flocked to the state to find the underground reservoirs and to secure the mineral rights needed to drill.

And then there were the banks, jewelers and car dealerships that catered to the overnight millionaires.

Real estate soon emerged as the most noteworthy outlet for Texas money. With growth in commerce and in population, it seemed quite logical at the time to invest big in new housing developments, soaring skyscrapers in Dallas and Houston, shopping centers, and vacation condominiums on South Padre Island.

The peak of that era came in 1981, with oil priced at $31.77 per barrel.

Out in the oil nerve center of West Texas oil commerce, locals nicknamed two-seater Mercedes convertibles “Midland Mustangs.” In Houston, Rolexes were rechristened as “Texas Timexes.” Prominent Houstonians were known to stagger out of business lunches flagrantly intoxicated. The most prominent of Texans shrugged off their lack of business pedigree and leveraged themselves to the hilt in oil and real estate. And one in every 20 commercial Bell helicopters sold on the continent ended up in Houston — forcing the international airport to task an air traffic controller solely to juggle the chopper traffic, according to a Newsweek article at the time.

The only uncertainty in those days was just how high the prices of oil would go.

Then, everything fell apart.

Sick of high energy costs, Americans gave up their gas guzzlers and bought efficient cars. New fossil fuel discoveries in non-OPEC regions like in the North Sea only further glutted the oil supply. Texans who hoped OPEC itself might begin regulating its output only read in the news about dysfunctions and rivalries within the cartel.

The bottom hit in 1986. Oil was priced at $12.51, still high compared with 15 years before. But historical context was no help to oil producers who plunged deep into debt buying up rigs amid the frenzy to meet anticipated demand. The economic angel of death for oilmen came in the form of bankers calling in loans.

“The Dairy Queen was filled with the usual hardbitten but dejected crowd — noveau riche only a few months earlier, now nouveau bankrupt,” Larry McMurtry wrote in his 1987 novel “Texasville,” set in a bust-era fictionalized version of Archer City in northwest Texas.

And it was not just the small-town guys. Perhaps the of the most famous bankruptcies happened to a resident of the fashionable River Oaks neighborhood — former Gov. John Connally.

Connally, famously, was hit in chest with a bullet while riding in the same car as President John F. Kennedy in 1963. He would go on to serve several more terms as governor, then as a treasury secretary in the Nixon administration. After a party switch to the GOP, he ran unsuccessfully for president in 1980.

After Connally sold off his Austin home and Houston condominium to pay off debtors, national reporters descended onto Houston in 1988 to cover Connally as he tearfully auctioned off his possessions to pay off only a fraction of his debt. Items up for grabs included artwork, a parade saddle and the desk he used as governor. One attendee described it to the Associated Press as the “Super Bowl of auctions.”

But he would not be alone in despair. The pain hit prominent Texans across the state.

Connally’s longtime business and political partner, former Lt. Gov. Ben Barnes of Austin, also declared bankruptcy. So, too, did the energy company owned by Texas Rangers owner and Fort Worth oilman Eddie Chiles. The Dallas-based Hunt oil family went bust as well. Even George W. Bush, the old-moneyed son of the vice president, found his Midland oil company so deep in debt in 1986 that he sold it off.

But nowhere in the state bore the brunt like the Bayou City.

Suddenly, Houstonians were frantic to dump those helicopters. A pawnshop owner who found himself flooded with businessmen selling their Rolexes off to pay their mortgages firmly turned down an offer for a chopper.

“I wouldn’t take it,” pawnshop owner Keith Shaw told The Guardian Weekly in April 1986. “I never take things I can’t store on these premises.”

Another phenomenon sprouted up around River Oaks and downtown Houston: “see-through buildings,” which were glassy, newly constructed skyscrapers in which a motorist driving by could see the sunset through the buildings because there were no walls, people or office furniture to obstruct the view.

On the residential front, Houston was bleeding out its tax revenue. With so many newcomers during the boom, once-rural towns like Katy evolved into bedroom communities. Many of these transplants lost their jobs, and their home values plummeted. Without family nearby, many surrendered their homes to the banks and left behind suburban ghost towns.

More ominously, food banks were still new institutions. In Houston and other big cities, food donations had traditionally been the work of scattered individual religious and nonprofit groups. The movement for a more organized food outreach strategy took hold in the early 1980s with the creation of food banks in the state’s largest cities.

A group of physicians even traveled to Houston to study the hunger problem there. They found a dire situation in the refinery town Pasadena, sight of the “Urban Cowboy” premiere four years before.

“I was struck at the irony of a middle-class neighborhood, with neatly kept lawns, where people don’t have enough to eat,” Dr. Larry Brown of the Harvard School of Public Health told the Associated Press. “We saw a lot of once-stable families now in shaky circumstances.”

The pullback of spending and real estate collapse exacerbated the problems. Tax revenues plummeted, and governments cut services. And in Houston, Whitmire and other leaders worried the city had lost its swagger.

So they took a cue from another city that was only beginning to recover from its own series of calamities: New York. After a catastrophic fiscal crisis, rampant arson and a 1977 blackout riot that destroyed parts of the city, New York implemented a public relations campaign with a new logo: “I ❤️NY.”

Houston leaders moved forward with their own advertising campaign, known as “Houston Proud.”

It was a formative message to future U.S. Rep. Lizzie Pannill Fletcher, a Houston Democrat who was a River Oaks grade schooler in that era.

“Times were hard, but there was this bursting civic pride,” she told the Tribune. Thirty years later when she ran for Congress, her campaign messaging echoed that boosterism.

Not everyone in Texas hurt, though. Many Texas communities and industries outside of the petroleum industry did just fine in the 1980s. Some even thrived, including bankruptcy and divorce attorneys and real estate investors who had access to cash to buy up distressed properties.

Many Texans who lived through the bust told the Tribune that some good did come of the misery. In Houston, community leaders from all walks of life who had never interacted with each other were forced to work together to find solutions, and the city remains stronger today for that, Whitmire said. And the food bank movement became more organized and effective, providing a lifeline to thousands hit by the current economic crisis.

In September 1986, The New York Times sent writer Robert Reinhold to Houston to capture a city in distress, and he came away with this impression: “For all its troubles, perhaps because of them, Houston seems a more human place.”

Public policy would change as well.

Republican Cyndi Krier represented San Antonio in the state Senate and saw firsthand as government officials dealt with the fallout.

“People kept their wits about them, and the good news was you still at that time didn’t have the partisan divide that we’ve all seen much more recently,” she said. “There were Republicans and Democrats, but first there were Texans. People really were trying. You had disagreements, but it a wasn’t the anger and the distress and unwillingness to try to find common ground that is so sad now and will cost us in the long run far more.

“If this brings us back to that point where we put Texas ahead of partisan politics, as bad as this is, I think it will be worth it in a long term,” she added.

Eventually, oil prices recovered.

In 1992, Houston was ready for its comeback party. The Republican National Committee chose the city for President George H.W. Bush’s reelection convention. And by the mid-2000s, the cost per barrel would approach $100, albeit with 20 years of inflation factored in.

Many older Texans who lived through 1980s turmoil wince at the memories. Since those days, they made sure to keep some cash on hand for another crash. It’s a sentiment Krier endorses for governments as well.

“If there’s one thing that Texans should know is that we live in a cyclical economy, whether it is oil and gas, or agriculture,” said Krier. “You can’t assume you’ll always be on top of the mountain.”

She pointed to the crisis as the genesis of the state’s rainy day fund, a $10 billion state savings account that will lend state legislators some measure of relief when they convene again in 2021.

Now, though, Texans are looking into a new abyss, and it looks like a steeper fall ahead.

Tension between Russia and Saudi Arabia helped set off this new crash, but now with a worldwide COVID-19 lockdown, people have barely been driving or flying.

As bad as the 1980s were in Texas, the state’s unemployment rate rose only 3.8% over six years between January 1981 to January 1987. It topped out at 9%, which is surely an upheaval. The current unemployment trend lines are steep enough to make economists’ blood run cold. Amid the pandemic, the price of oil even dropped into negative territory: Producers had to pay to get rid of it.

U.S. Rep. Lloyd Doggett, D-Austin, served in the state Senate during that previous crisis, and he pointed out to the Tribune that the COVID-19 economic crisis spills into nearly every sector of the economy.

The 1980s oil bust “affected particular sectors of our economy, but they didn’t necessarily affect everyone everywhere, and so this is one where we really do all have a stake in how this all turns out,” he said.

Retired U.S. Rep. Joe Barton, a Republican, came to Congress at the peak of the crash and devoted his career to the oil and gas issue. He warned that a return to past demand will not be immediate, even when the world returns to normalcy.

“Long term, the future’s very bright for Texas and very bright for the oil sector, I’m guessing,” he said. “It’s just the next two to three years you just don’t know how fast demand for energy will come back.”

If there is any correlation to that time and what is potentially ahead for Texans now, it is this: Misery has company.

“There’s no disgrace attached to losing your money in a bust like this one: it doesn’t mean you did anything wrong, everybody’s bust,” columnist Molly Ivins wrote in 1986.

Sam Manas contributed to this report.